There are so many questions that run through the mind of a business owner daily.
And when they start thinking about raising money to grow the business, more questions are bound to arise.
A typical business owner has more questions than answers but to be successful at raising capital for your business, there are a few critical questions you must answer.
Here are the five questions you must answer before you seek investment in your business:
- Why do I need to raise capital for my business now?
- Why would investors want to invest in my small business?
- Do I have everything I need to raise funds, is my business prepared, do I have the required documents?
- Am ready for the rejections and to give up control?
- What type of investor do I need?
1. Why do I need to raise capital for my business now?
Before you start seeking investment for your small business, you must be clear as to why it is the right move for your business and why it is a priority for your business now.
Answering this question is the best place to start your fundraising journey. Because it will help you highlight the purpose of the investment you are seeking and how it could improve your business.
It is unfortunate, however, that many business owners skip this question and seek new investment for their businesses because others are doing it.
2. Why would investors want to invest in my small business?
This is a difficult question for many entrepreneurs because it’s not easy to look at your business objectively.
But it is critical if your fundraising quest must be successful.
You must place yourself in the shoes of the investor and ask “why would I want to invest in this business if it was run by someone else?”
In your bid to answer this question, you would unearth the value that your business will bring to investors, as well as anticipate the questions they would want answers to – does it make financial sense? Is the business growing? Is it valued correctly? – what are the upsides? What are the risks? and prepare answers before hand.
You would agree that by assuming the role of an investor you would determine if your business would be a valuable option to investors.
Because investors are not just looking to dump their money with any business owner that asks, they want returns on their investment, and they look at every funding request or application through that lens.
3. Am I ready for the realities of external investment?
The truth is that not every business owner would be comfortable with the realities of seeking and getting investment.
To determine how prepared you are, you must assess the realities of what an external investment would mean for your business and whether you are ready to face them.
Because fundraising for any business is a very competitive and sometimes, frustrating game.
As a business owner, you must be ready to face rejection repeatedly from banks, and equity investors depending on your choice of investment.
And even when you get a deal from an investor, are you ready to give up control of part of your business?
Many business owners go through the tedious process of fundraising only to realise much later that they don’t want to give up any part of their business.
Ask on time and make sure, you are sure about your answers before approaching investors if you’re seeking equity investment.
4. What type of investor do I need?
This question is also very important. If you find out that you and your partners are not comfortable giving up any share of your equity, you must seek other types of investment.
A very popular alternative is debt investment.
But you have to first, know what type of investor you’re comfortable with.
But that’s not all, you also need to determine what type of investor would be right for your business.
There are different types of investors; for instance –
- If you’re seeking a loan from the bank, you don’t just walk into any bank and ask for one. You have to do your research and find out which of them is the best option in terms of their interest rate, support and industry of focus. Some banks are great with agribusinesses more than others. You have to know the type of investor you need.
- If you seek an equity investment, their different types of investors – if you just need the capital be clear about that, if you need an investor that brings both capital, expertise and industry connection be sure that you prioritise that when you eventually begin your fundraising journey.
5. Do I Have All the Required Documents?
Before approaching any investor, you must answer this question at least twice.
Because you cannot successfully raise a kobo if you don’t have the required documents.
This may vary slightly depending on your source of investment and the type of investor you intend to approach, that is why you should always research thoroughly about everything that you would need for any given investor.
Regardless, there are a few documents that are generally required by investors.
- Business Plan – Before you go out seeking investors, you must revamp your business plan so that it is investment friendly and up to date.
- Financial Statements – Your financial statements are critical to the investors’ decision to invest in your business or not. Many small business owners shy away from this area of their business and don’t do enough to present their business in the best light through their books. We wrote an article you should check about the things investors look for in your financial statements, you should check it out. If you need help understanding your finance and presenting your documents in the best possible light for investors, then you should sign up for our SME Finance Loan Advisory today!!!
- Documents of legal registration – Documents like the Corporate Affairs commission certificate, FIRS Documents and others are important documents that would be required to ascertain the legality of your enterprise.