Five Things to Know about Your Business BEFORE You Look for Financing

Posted on 09/28/15 by Tara Palacios

Guest blog post courtesy of Lori Atwood of Fearless Finance, LLC.

You are a visionary, an entrepreneur. You know there is a need for your product/service and you know you can give your customers what they need. All you need is a little cash. You need seed money, something to get you started implementing your vision, right?

You know you need financing. You’ve heard about venture capitalist, angel investors, crowd funding and even stodgy bank financing. You’re ready to talk to anybody… but are you really?

What do you need to know like the back of your hand to really engage in a meaningful discussion about financing your business? It’s not simply knowing that you need financing. You may get just a minute or two with someone who could change your life. Be ready!

Here are the five things I want my clients to know better than their own phone number:

1. Elevator Pitch — How to describe your business in 60 seconds or less. Tell me what problem you solve for customers and tell it to me in 60 seconds or less
2. Breakeven Point — How many *widgets* do you have to sell per month to break even? This number tells me if an investment passes MY GUT test of whether selling that many widgets per month is reasonable. If you have to sell 20,000 per month to breakeven, I’m not sure…
3. Profitability Number — How much money you need to raise to implement your business strategy and get to profitability — seriously, know this number down pat. How much financing do you need to become profitable, not rich, just a going concern that NO LONGER needs financing. This tells an investor when the bleeding will stop.
4. Debt or Equity — Do you need debt or equity? Yes, there’s a big difference. If you need to buy equipment, raw materials, inventory, it’s debt. Not sexy, just practical. Equity investment is for long technical or design development phases.  More risk, more return: equity.
5. Competitive Edge — Why your business is different than everyone else making *widgets* (yep, you have to describe it in less than 60 seconds). Preferably you can say this in a few words only.

Until you have a great response to the 5 items listed above in your sleep, you should not go out for financing. What you should do is the homework and planning to get the right answers to the 5 questions raised here. You can only do that with solid financial planning for your business.

You need a solid financial model of your business that allows you to run scenarios and see what happens to your business under certain circumstances. It allows you to see how you are doing versus your goals and how to correct it if something goes off the rails.

If you have not started doing business yet, your financial model is a set of projections based on your intimate knowledge of your business space and customer base. If you are doing business, it’s a model of the actual data you have AND projections for the future.

You already do all the jobs in your business probably, you will also need to be your own CFO until you can afford to hire one. Know what makes your business go, financially.

Want to know more? Lori Atwood will have more insights on finding business financing with "Show Me the Money," a workshop on how to achieve financial goals for your business.  Click here for more information or to register for this free workshop.

Topic: BizLaunch