Raising Money: Anchor Your Business Plan in Reality

Raising Money: Anchor Your Business Plan in Reality

Many new entrepreneurs think that the business plan is the most important thing to complete in order to raise money for their businesses.

That’s true, to a point. Without a business plan, no financial institution will lend you money for your business without full security. But the writing of a business plan is an administrative function. It’s the research, the strategy, the financial projections that mean the most. You may think that you have a brilliant idea and that there are hundreds of people out there just waiting for you to start your business so they can purchase what you have to offer. That’s what we call …

THE BUILD IT AND THEY WILL COME THEORY

One example that some use to demonstrate the validity of this theory is the line-ups, the camping out for days, the willingness to pay top dollar for the first edition of a new Smart Phone release. On the surface, it looks like all you have to do is build the new model and people will flock to buy it.

What is forgotten is the thousands, perhaps millions of hours spent in researching and development of the new product. Oh, and the tens of millions of dollars in advertising and public relations and trade shows and prelaunch events necessary to get the word out – to build the emotional momentum for the buying public. That’s not to mention the years of having successful product launches in the past, all of which involved a great deal of risk and hype to reach the point where a new release is accepted as valuable based on past experience of owning earlier models of a similar product.

ANCHOR YOUR BUSINESS PLAN IN REALITY

There’s so much more to be said about a business plan based in reality. Here are just two tips that can save you a lot of heartache and financial loss if you pay attention to them up front.

Do your research. To say that you have a brilliant idea is one thing. But to know that your target market agrees with you and is willing to pay for what you offer is another thing entirely. It’s foolish to risk your own money and near impossible to raise other people’s money (at least from any financial institution) without having clear evidence that there is a gap in the market and that you can fill it with your new business idea. (Tune in next week for some tips on how to do effective research that almost guarantees you will have clients the day you hang out your shingle.)

Be prepared to put up security and money of your own. The first thing you will be asked by your banker is how much money you are putting into the business yourself and what security you have to offer for any loans they might make to you. So save your money, or look to private investors for your first funding before seeking matching or additional funds elsewhere. If it’s a new business, you will not likely have business assets to put up as security and will need to provide personal guarantees, and perhaps remortgage your home or provide invested or other assets as security. So long as those assets are used in that way, they cannot be sold or leveraged to any other lender until your related debts are all paid off.

When you have a secured loan, the financial institution does not much care what it’s for. They need to have some certainty that you can make your loan payments and that in the unfortunate event of a default, the assets they have accepted as security can be liquidated to pay them back.

Pay attention before you go the bank or the government looking for money for a new business venture, and your chances of success will be multiplied many fold.

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