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HOW TO RAISE MONEY FOR STARTING A BUSINESS

 

 

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 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 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!_

 

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