Experts will tell you to accept and even embrace failure. That’s all well and good, but it’s only helpful if you learn the right lessons! As an entrepreneur as well as an advisor, I’ve developed some tips that I think can help you avoid or at least minimize the missteps that are often part of being an entrepreneur.
The most important step for a startup is your business plan. The old saying that if you fail to plan, then you plan to fail is absolutely true. Honing your message helps prospective lenders understand your business concept and helps you develop your strategy for success. But don’t stop with the income statement – prepare your balance sheet and cash flow statement as well.
Here are what I consider some keys to attracting financing:
- Do I have a believable market definition – a real story to tell?
- Do I have a realistic growth plan? Make your projections realistic and believable.
- How do I plan to compete and is my product/service unique?
- Is my product/service scalable?
- How will lenders get their money back?
Your financing goal should be to replace expensive equity lending with cheaper debt. Or, as I often say, “you don’t need no stinkin’ partners!”
When your business starts going south, it’s usually because you’ve run out of money. A lot of entrepreneurs think venture capital is the way to go, but there are a lot of better (and more realistic) options for capital out there. Truthfully, there are few venture capital firms based in Florida, and they’re typically interested in later-stage companies anyway. Here are more likely financing options:
- Friends and family – These are the people who are most likely to believe in you and support your business, but be sure to treat them professionally.
- Home equity – Lenders and investors want to see that you’re all in. This is the cheapest and easiest form of financing.
- Credit cards – This is the most common form of financing, but remember it’s tied to your personal credit.
- Small Business Administration – The SBA no longer makes direct loans to small businesses, so you’ll need to shop banks and intermediaries for the best programs and terms. Look for SBA preferred lenders.
- Product pre-sales – If you can get commitments and funding prior to the manufacturing of your product, more power to you!
- Strategic and angel investors – Although it’s better to avoid equity partners, just remember they are looking for big returns and usually want a hand in running the business. Ask how many investments they’ve made in the past year.
- Crowdfunding – A relatively new form of funding, this can be pretty expensive.
You may never experience problems with your business – but if you do, don’t give up just yet. First, be honest about your mistakes and communicate early with your lenders. Second, get help! Lenders have more resources and experts than you do and it’s in their interest to see you succeed. There are also advisors and organizations who do this for a living – so put your ego aside, find them and ask for their help.
Penny Larsen is the founder and president of Links Financial, LLC, a financial intermediary firm. You can contact her at firstname.lastname@example.org.