HOW TO RAISE MONEY FOR STARTING A BUSINESS

Kevin Purfield HOW TO RAISE MONEY FOR STARTING A BUSINESS

Copyright © Kevin Purfield

The task of raising money for a business is not as difficult as most
people seem to think. This is especially true when you have 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: Anytime 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.

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 thru"
those extreme "ups and downs" inherent in any beginning business.
You should also describe what makes your business unique - how it differs
from 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 directors?

An investor uses his money to make more money. He wants to make as much
as he can, regardless whether it's a 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, an "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 need so 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 potentials,
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 5 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
with out 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 and ask
him if he'd look it over and offer any suggestions for improving it,
and of course, let you know of any potential investors. In either case,
it's always a good idea to let them know you're willing to pay a "finder's
fee" if you can be directed to the right investor.

Professional people such as doctors and dentists are known to have a
tendency to join occupational investment groups. The next time you talk
with your doctor or dentist, give him a prospectus and explain your plan.
He may want to invest on his own or perhaps set up an appointment for you
to talk with the manager of his investment group. Either way, you win
because when you're looking for money, it's essential that you get the word
out to as many potential investors as possible.

Don't overlook the possibilities of the Small Business Investment Companies
in your area. Look them up in your telephone book under "Investment Services."
These companies exist for the sole purpose of lending money to businesses
which they feel have a good chance of making money. In many instances,
they trade their help for a small interest in your company.

Many states have Business Development Commissions whose goal is to assist
in the establishment and growth of new businesses. Not only do they offer
favorable taxes and business expertise, most also offer money or facilities
to help a new business get started. Your Chamber of Commerce is the place
to check for further information on this idea.

Industrial banks are usually much more amenable to making business loans
than regular banks, so be sure to check out these institutions
in your area. Insurance companies are prime sources of long term business
capital, but each company varies its policies regarding the type of business
it will consider. Check your local agent for the name and address of the
person to contact. It's also quite possible to get the directors
of an other company to invest in your business. Look for a company that
can benefit from your product or service. Also, be sure to check at your
public library for available foundation grants. These can be the final
answer to all your money needs if your business is perceived to be related
to the objectives and activities of the foundation.

Finally, there's the Money Broker or Finder. These are the people who
take your prospectus and circulate it with various known lenders or
investors. They always require an up-front or retainer fee, and there's
no way they can guarantee to get you the loan or the money you want.

There are many very good money brokers, and there are some that are not
so good. They all take a percentage of the gross amount that's finally
procured for your needs. The important thing is to check them out fully;
find out about the successful loans or investment plans they've arranged,
and what kind of investor contacts they have - all of this before you put
up any front money or pay any retainer fees.

There are many ways to raise money - from staging garage sales to selling
stocks. Don't make the mistake of thinking that the only place you can
find the money you need is through the bank or finance company.

Start thinking about the idea of inviting investors to share in your
business as silent partners. Think about the idea of obtaining financing
for a primary business by arranging financing for another business
that will support the start-up, establishment and development of the primary
business. Consider the feasibility of merging with a company that's
already organized, and with facilities that are compatible or related
to your needs. Give some thought to the possibilities of getting the
people supplying your production equipment to co-sign the loan you need
for start-up capital.

Remember, there are thousands upon thousands of ways to obtain business
start-up capital. This is truly the age of creative financing.

Disregard the stories you hear of "tight money," and start making phone
calls, talking to people, and making appointments to discuss your plans
with the people who have money to invest. There's more money now than
there's ever been for new business investment. The problem is that most
beginning "business builders" don't know what to believe or which way
to turn for help. They tend to believe the stories of "tight money,"
and they set aside their plans for a business of their own until a time
when start-up money might be easier to find.

The truth is this: Now is the time to make your move. Now is the time
to act. The person with a truly viable business plan, and determination
to succeed, will make use of every possible idea that can be imagined.
And the ideas I've suggested here should serve as just a few of the unlimited
sources of monetary help available and waiting for you!

Resource Box
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Kevin Purfield owns the Wealth System Online Resource Directory
where you can find everything you need to start,run and grow a home based
internet business at:
http://www.wealthsystemonline.com/pluginprofits.htm
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About the Author

Kevin Purfield owns the Wealth System Online Resource Directory
where you can find everything you need to start,run and grow a home based
internet business at:
http://www.wealthsystemonline.com/pluginprofits.htm