Thanks to the Dragons’ Den Blog for being in touch to discuss The Worst Ways to Raise Cash as an Entrepreneur; it’s always great to share some tips and traps when it comes to building a company.
Although it’s no secret that there are various approaches than an entrepreneur could take to finance a young venture, this should be considered in a broader context. Startup companies typically receive their initial financing through “founders, family, and friends”, with perhaps some support through grant and similar programs. What tends to get lost in the process is whether or not doing so is actually a good investment. Considering this includes determining the likelihood of: (i) the capital being repaid, at some point in time; and (ii) the return that could be generated, if any. Doing so can really only be achieved by way of developing a thorough and complete business plan, including a financial forecast for at least a three year period.
Entrepreneurs and business planning don’t always have a good partnership, however. Business planning tends to get downplayed as “not that important” or “impossible to do for a startup”; both of which are false. When an entrepreneur prepares a business plan, they tend to insufficiently address areas that are of significance to investors, such as industry and market issues and the right business model, and instead, focus on an abundance of product and technical content. The impact? Little to no chance of raising investment capital.
Entrepreneurs should, instead, consider whether or not a startup is worth spending their time and money on, as it will surely take plenty of both. It is important to take the time to do so before investing one’s own capital, regardless of the source, and before asking others to do the same. As a business advisor and former venture capitalist, I have seen too many young companies that likely would not have been launched, had these questions been asked and answered in advance. Further to this point, rarely have I met an entrepreneur who actually took the time to do their business planning homework first, although I have met many who wished that they had better understood the financing implications and realistic potential of their company sooner.
Not sure how to address these important areas? Advisors can help. Not only can they assist with putting the right business planning efforts in place, they can also help to identify opportunities to generate cash sooner, which is another area that entrepreneurs tend to miss. Contact us to learn more.