The lifeblood of any business i.e. money requires effective management to keep up the flow of input and output. But you might need external resourcing or infusion at some stage of your business. The amount may be as small as $1000 that you may borrow from a friend or $1 million to be borrowed from a commercial bank. Sometimes, you only need money for a project and not for your business.
In either case, borrowing money requires really good listening. You need to encourage or prepare someone to invest in your business regardless of its current market position. It also includes translating your dream into their needs or future profits. For example, if someone is close to retirement then you may encourage that person to invest in your established business for securing their retirement period.
Here are a few things you must do to prepare yourself before approaching an investor. We have also compiled common mistakes which entrepreneurs make when approaching the investors.
Do some Research About Them
After finding out your potential investors, you need to do some research about them. Angel investors and venture capital investors are convinced differently from commercial banks. For convincing commercial banks, you need to focus more on your profile. But for convincing angel investors, family members and venture capitals, you need to focus on their profiles more.
Do some research about their likes and dislikes and elements that excite them. Find out the elements that motivate them and do research about the causes they have already invested in. Some people prefer investing in real estate business whereas others are more interested in medical industry.
Clean Up Your Credit
The potential investor would definitely want to see how you manage the flow of your business and money. The proof of your financial records and business backup is also essential to convince them. A credit report compiles all the essential financial items required to convince an investor. Prepare a credit report if you do not have one.
Get a free credit report from a reputed credit agency like Equifax, Experian or Trans Union. The investors will have a close look at your credit report; therefore, make sure that you remove all the errors. If you find an error, send a letter to the creditor and inform your credit report agency to fix the error in the new report. If you lack time then make sure to attach the letter of creditor with your credit report to show it to the investor.
For starting a new business, the credit score of 710 or above is ideal. If you have an established business then you can do well with 680 credit score or above. If you have a credit score below 680, then you will need to seek investment from microloans and credit unions irrespective of market status of your business.
Prepare a Business Plan with Creditable Metrics
Preparing a business plan for investors is completely different from preparing a business proposal. Investors are more likely to consider the details than key numbers.
If you want to start a new business, then make sure to prepare a realistic business plan. A majority of the fresh entrepreneurs make optimistic and impractical estimates based on quick sales. A good business plan includes metrics of your invested money, estimates of monthly sales, and gross yearly profit and margins. A graph representing different criteria of your business at different growth stages will also be effective to convince the investor.
An established business looks out for a foreign investment if things are going off ground or when business expansion is required. Therefore it is necessary to hone in the creditable metrics which can guarantee revenue during low productivity days as well. With a complete outlook of your business data in your pocket, you can assure 50% success in getting the investment.
Personalize the Wishlist
You probably would have already prepared a wishlist of the key potential investors. But remember that one size does not fit all. Every investor is satisfied with different perspectives in person. Personalizing the wishlist includes making meeting points based on individual investor’s interests and preferences before going out for an appointment.
Stitch in Time to Save Nine
One of the major reasons of a failed investment trial or business launch is offering wrong products and services to wrong people, at wrong places, and at wrong time. You might already be working on your product since more than 2 years but investors are more concerned about their personal interests. Find out how the product or service will benefit the investors in current market before meeting them.
Key Mistakes Every Entrepreneur Should Avoid
Fresh and old entrepreneurs may make different types of mistakes when approaching an investor. These mistakes are immediately caught by the investor and may affect the turnaround of your meeting. Here are the common mistakes every entrepreneur should avoid.
- Many entrepreneurs waste time by looking out for the wrong type of investor. Make sure that you understand the differences between crowdfunding, angel investing, venture capitalizing, commercial banking and other types of investments when finding out the most suitable option for you.
- Not making your business tax efficient makes you 85% more expensive than other investments. Offering the investor a certificate of tax relief makes your business more interesting for them than other investments.
- Make sure that your business complies with financial promotions law. Articles of Association, Pre-emption rights and shareholder rights are some critical aspects to look at.
- The excited entrepreneurs believe in sending long business plan for convincing the investor. Firstly, the long business plans are exhaustive and the pile of pages already makes the investor lose interest in your business. Secondly, they have more chances of mistakes than a precise and cleverly composed business plan. Therefore, always send a brief and reviewed business plan to the investors.
- Don’t leave the valuation up to the investors. The best way is to give a range of investment to the investor. Make sure that the limit of range is at least 1.5 times more than your need to sustain the margin of bargaining with the investor.
With adequate understanding of proper preparation before meeting an investor, you will not only save time but also put your business on right track in the most beneficial times.