an idea that can make you and your backers rich. Actually,
there's more money available for new business ventures than there
are good business ideas.
A very important rule of the game to learn: Any time you want to
raise money, your first move should be to put together a proper
prospectus.
This prospectus should include a resume of your background, your
education, training, experience and any other personal qualities
that might be counted as an asset to your potential success. It's
also a good idea to list the various loans you've had in the
past, what they were for, and your history in paying them off.
READ TOO: Secrets to Successfully Starting Your Own Business
You'll have to explain in detail how the money you want is going
to be used. If it's for an existing business, you'll need a
profit and loss record for at least the preceding six months, and
a plan showing how this additional money will produce greater
profits. If it's a new business, you'll have to show your
proposed business plan, your marketing research and projected
costs, as well as anticipated income figures, with a summary for
each year, over at least a three year period.
It'll be advantageous to you to base your cost estimates high,
and your income projections on minimal returns. This will enable
you to "ride through" those extreme "ups and downs" inherent in
any beginning business. You should also describe what makes your
business unique---how it differs form your competition and the
opportunities for expansion or secondary products.
This prospectus will have to state precisely what you're offering
the investor in return for the use of his money. He'll want to
know the percentage of interest you're willing to pay, and
whether monthly, quarterly or on an annual basis. Are you
offering a certain percentage of the profits? A percentage of the
business? A seat on your board of directories?
An investor uses his money to make more money. He wants to make
as much as he can, regardless whether it's short term or long
term deal. In order to attract him, interest him, and persuade
him to "put up" the money you need, you'll not only have to offer
him an opportunity for big profits, but you'll have to spell it
out in detail, and further, back up your claims with proof from
your marketing research.
Venture investors are usually quite familiar with "high risk"
proposals, yet they all want to minimize that risk as much as
possible. Therefore, your prospectus should include a listing of
your business and personal assets with documentation---usually
copies of your tax returns for the past three years or more. Your
prospective investor may not know anything about you or your
business, but if he wants to know, he can pick up his telephone
and know everything there is to know within 24 hours. The point
here is, don't ever try to "con" a potential investor. Be honest
with him. Lay all the facts on the table for him. In most cases,
if you've got a good idea and you've done your homework properly,
and "interested investor" will understand your position and offer
more help than you dared to ask.
When you have your prospectus prepared, know how much money you
want, exactly how it will be used, and how you intend to repay
it, you're ready to start looking for investors.
As simple as it seems, one of the easiest ways of raising money
is by advertising in a newspaper or a national publication
featuring such ads. Your ad should state the amount of money you
want--always ask for more money than you have room for
negotiating. Your ad should also state the type of business
involved ( to separate the curious from the truly interested),
and the kind of return you're promising on the investment.
Take a page from the party plan merchandisers. Set up a party and
invite your friends over. Explain your business plan, the profit
potential, and how much you need. Give them each a copy of your
prospectus and ask that they pledge a thousand dollars as a
non-participating partner in your business. Check with the
current tax regulations. You may be allowed up to 25 partners in
Sub Chapter S enterprises, opening the door for anyone to gather
a group of friends around himself with something to offer them in
return for their assistance in capitalizing his business.
You can also issue and sell up to $300,000 worth of stock in your
company without going through the Federal Trade Commission.
You'll need the help of an attorney to do this, however, and of
course a good tax accountant as well wouldn't hurt.
It's always a good idea to have an attorney and an accountant
help you make up your business prospectus. As you explain your
plan to them, and ask for their advice, casually ask them if
they'd mind letting you know of, or steer your way any potential
investors they might happen to meet. Do the same with your
banker. Give him a copy of your prospectus