Getting a business financed is tough. As many as 27% of businesses claimed that they failed to receive the funding. Are you one of those? If yes, then this blog is for you and for anyone who wants to succeed in securing startup capital.
Startups never have it easy. Their journey is an arduous and painstaking one. Of all the various challenges they have to confront, the most challenging one strikes them in the beginning – that of acquiring startup capital.
Depending on the capital needs, a startup will find many options on the table from Loans, venture capitalists, Trade credit from suppliers, to line of credit and so on. There are obvious risks attached to almost every form of funding method. Your success depends on the ability to do the basic things right and in avoiding the mistakes that contribute to failure. Following are the 5 mistakes along with their solution:
1. Ascertain The Accurate Capital Requirements
Knowing the exact capital requirement is quite important before you pay a visit to the investors. Entrepreneurs like to think that if they ask for a smaller amount, they’ll have a better luck in acquiring it. Sounds good in theory, but this approach backfires in two ways: Firstly – investors will see that you’ve clearly undermined your startup’s capital requirements and would simply decline your request by assuming you’re not serious about it.
Secondly, even if you do succeed in acquiring, there’s every possibility that you’ll run out of money in little or no time. At this point, you’re looking at a very dire scenario possibly threatening your business’ survival.
So it’s always better to accurately estimate your capital requirements and then make a solid pitch to the investors. They’re more likely to consider your application when you ask for a valid sum of money.
2. Value The Equity Share
A larger share of equity always draws investor’s interest in. There’s always the temptation to give away more equity than you should just to get your startup financed. But you’re better off resisting that temptation.
Startups are always tricky and you never know what circumstances may arise in near future. Imagine a scenario where your startup doesn’t go as per plans, and you begin to incur huge losses. As the normal business operations begin to suffer, you may turn to further financing. That will just shrink your ownership share to the bare minimum. That’s why as an entrepreneur you have to value the equity and carefully approve a reasonable share to the investors.
3. Personal Credit-Card To Fund Your Startup
Thinking of funding your business with your personal credit card? Well, our humble advice would be – think again. Even if you have an all impressive credit card rating, there’s no reason to fall prey to the ‘worst-case scenario’. Credit-score is just a rating provided by your credit-card issuers and is in no way indicative of whether or not you’re capable of funding your startup. Studies have shown that people who bank on credit card financing eventually end up in failure.
That’s why piling up credit as you attempt to realize your startup’s vision isn’t a good idea. Should you fail, your personal finances could take a major blow and you won’t have any means to pay back the dues.
4. Be Wary Of Advance Fee Loan Scams
We’re all aware that there’s been a surge in the number of people seeking funds for their start-ups. That’s where some of the scammers have attempted to cash-in. With Advance fee loan scams, entrepreneurs are guaranteed to get necessary funding irrespective of their credit history.
How these programs work is quite interesting. They initially ask for an upfront fee and once you pay that out, you’re required for the loan to be approved – well in truth, the loans never really happen.
The Governments around the world try to keep a close check on such programs, but still, the surreptitious manner in which they work, some people do end up falling victim to them. So you have to be ultra careful with these scams, and if you happen to get a hint of any suspicious activity, you’re required to report them to the security agencies.
5. Don’t Underestimate The Cash-Flow Analysis
Investors often take a keen interest in cash-flow statements and for good reason. They want to know how you’ll use the money lent by them. So you have to present a detailed summary of every pound and penny and where it’ll be spent in the daily business operations. Investors like to see you have a firm grip on everything.
Should they see you’re unsure at any point, their decision to grant you the loan could be affected. Furthermore, it’s not very prudent to consider faking a cash-flow analysis. The more ambitious your idea, the more answers you’re likely to have up your sleeves come the face-to-face time. So analyze everything and make an authentic cash-flow analysis that really convinces investors to help you up with the funds you’re seeking.
Capital-funding is a ‘big deal’ and it’s something a business-owner has to prepare him/herself as best as they can. Knowing the aforementioned pitfalls should prove useful as you get ready to make a pitch to the investors.