Blog | Entrepreneurship

Attract the Funding You Need

What You Need — and Why — to be a Successful Entrepreneur

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Creating a new business is fun, exciting, challenging and requires you to do all the work. The dividing line between successful entrepreneurs and dreamers are those who actually do the work. That’s where all the learning takes place.

But being successful isn’t just about learning and doing—it takes money too.

In my last blog, Pros and Cons of Buying a Franchise, I gave you the considerations if you wish to purchase a franchise, but I left one big thing out: the funding. Whether you are looking for funding for a startup, an expansion of your business, franchise purchase, promotional activities, you will need money.

If you don’t have all the cash you need, you will have to seek outside funding through investments, loans or a combination of the two.

Owning a business doesn’t come cheap, unless your business is 100% digital—then it’s a little cheaper. But all businesses will have to pay for everything including payroll to advertising, insurance to office supplies, buildings to vehicles, research to raw materials. You may even consider a salary for yourself.

The key is understanding every cost associated with doing business and know that you have accurately estimated for those costs.

Equity Financing Vs. Equity Compensation

If you can’t finance your company on your own—most people can’t—they offer equity to investors.

Equity Financing is when you sell pieces of your company to investors in exchange for cash. When you make money, your investors get paid a portion of the profits. This type of equity is best for sole proprietors.

Equity Compensation is when you offer employees of your business a percentage of the profits as part of their compensation. This saves you on monthly salaries because you can either offer a lower salary, or it replaces a salary completely. This option is best for someone who needs people, not cash.

Choosing between the two is a decision that you have to make, but at least you know there are options when deciding what you want to give up.

What Are You Willing to Give in Return

I love watching the t.v. show Shark Tank. My favorite part is when the entrepreneur states their proposal and says, “I’m offering $300,000 with a 10% stake in the company.” Then a shark comes back and says, “Your company is not worth $3 million!” Then, things get interesting when Mr. Wonderful, Kevin O’leary, offers $300,000 but wants to be paid in royalties.

I can only imagine what the entrepreneur must be feeling. Especially because most deals aren’t done on camera and broadcast to millions of people.

But the key here, is deciding well in advance what you’re willing to give up. That all depends on what makes most sense to your overall business plan.

How Much to Ask For

All of this means nothing if you don’t have a business plan. Whether you are preparing your plan to buy an existing business or a startup, whether you want to attract funding or guide management, you need to address financials.

It’s not like the good ol’ days when you had a relationship with the local banker and he’d loan you money on a handshake. Those days are long gone.

The key to focus on in your business plan is how your business is going to make money. This is the first place an investor looks. Numbers say a lot, and the financials outline how much money you need, and how the investor is going to get paid.

Typically, most plans include information like:

  • How much money is needed to operate the business (income statement, cash flow statement, balance sheet, and income projections)
  • How borrowed funds will be used
  • How much and how company funds will be used
  • How much money will be needed in the future
  • The break-even point
  • Current and past spending

When you present your plan to the people making financial and investment deals, they will likely know a lot more about financials than you do. After all, they have likely seen a lot more business plans than you have and are experienced at weighing the potential risks and rewards. So don’t fake it or play a guessing game when you write your plan. They will see right through you.

The better you understand your business, the better prepared you are to write you business plan and attract funding. Too many entrepreneurs get caught up in the excitement of taking the entrepreneurship leap. Increase your chances of being a successful entrepreneur and learn more about writing a successful business plan by reading my book Writing Winning Business Plans: How to Prepare a Business Plan that Investors will Want to Read—and Invest In.

Original publish date: September 26, 2018

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