Are You Currently Raising Money for Your Business?

Are you currently raising money--whether it's in equity or debt? If you are, you are probably focused on a total amount you are trying to raise. Here is a simple exercise that can get you to the finish line faster.

Let's say you're currently looking for a $1,000,000. Take out a blank piece of paper, and write down what you will use the money for over the next 12 months. And also write down your expected revenue you will generate and the milestones you believe that your business will achieve with the money.

Now take a deep breath, put the piece of paper in a drawer and do the exact exercise for a raise of $500,000.

And to finish the exercise, put that piece of paper to the side and do the same thing for a raise of $250,000.

Now it's time to compare the three plans. You have to evaluate if the incremental money is worth the dilution or the extra time it might take to get it.

Typically, entrepreneurs think big and typically that means more money than they really do. They're either not bootstrapping, or they have too long of a horizon ahead of them. Sometimes, when you're trying to raise too much money for the current stage of your business, you risk wasting months and months of time.

Take your three plans and ask a mentor, or professional commercial capital advisor, for advice. Present the three alternatives and ask them to debate the pros and cons with you. The tension between the three alternatives will help you figure out what makes sense for you. Perhaps if you go with the smaller amount, you can do it with debt, and not give up equity. Or in the discussion about the different plans, you might think about creative ways to finance some of your needs – incrementally, over time.

Here’s a typical scenario: It takes months to get a meeting with potential investors. You stay awake for hours on end building the "perfect model" in excel for what you would do with $2,000,000 (or whatever the figure). You sit down at the meeting with your freshly printed business plan from Kinko's--which no one actually reads and they ask you what you could do with $200,000.

You feel rejected.  Your stomach is in knots and you feel like you’ve wasted time.  You second guess yourself. But in fact, they were correct. You take the money and get started. The opposite of that funding is zero and that gets you know-where fast.  If you had waited for the $2,000,000—you’d still be looking for the money.

As you head into the second quarter of 2017, challenge your assumptions about how much money you think you need. Consult experts in the field that have your goals in mind. You might be surprised with the outcome.    

 

Cardinal Capital, LLC, Financial Consultants  No License Required, Baton Rouge, LA