How To Raise Capital For Your New Business

LocalNet360-As we continue our series on helping small companies expand onto the Internet as a means of improving business, its now the time to discuss issues you will face when raising money for your new business and its uses to get discovered on the web. Today we will focus on management issues. While its still early for most small businesses to buy into the concept of social networking, the truth is that now is the time to get started. This article will discuss the benefits of raising money and later using various social networking sites to help promote your business, as well as some of the potential methods that can be implemented.

Raising Money For Your New Business-Good or Bad?
There is no such thing as having too much money. Every business needs money to operate and grow their business. The key question is what can you do if you need money? The first thing anyone should do is to sit down and write out a plan. You need to decide how you plan to grow your new business and how much it will cost. A very good exercise for those of you that have never done this before is to watch the ABC TV program Shark Tank. This program will expose you to a wide range of businesses from Housewives with new kitchen Gadgets to more complex businesses with over $1MM in annual sales, but still seeking investors to help them take their business to the next level.
One of the best lessons that you can learn from watching a program like Shark Tank is to help you distinguish between the businesses that get funded and those that dont and more importantly why. As an example, as an entrepreneur, you are expected to be full of passion and in love with your business. However, investors are only in love with making money.
As each person enters the Shark Tank, the Sharks who invest their own money are only concerned with a few things, which I will explain here. The first issue is do you have a good business or idea? How does the Company make money? Does the Company have any paying customers? What does the product or service cost, what is the profit margin and overall profit of the business? Is there a patent pending on the product? Is the market large enough for an investor to make any money (Market Studies can help)? Who are your competitors?
As you begin to answer these questions, you will quickly get a sense as to which Sharks will be interested in your business. Some Sharks understand selling products on TV, while others understand retail stores and still others understand technology such as computer software. An investor that understands your business is more likely to invest than one who does not.
The next Key question is: what is your business worth? Every entrepreneur believes that their business is worth much more than it really is. After years of consulting and having raised millions of dollars myself, I can clearly state that the value an investor places on your business is nearly always less then what you would value the business at.
Investors dont care how much sweat equity or money you spent on the business in the past. All they care about is where are you now, what will you do with their money and how will they get it back and make a profit. If you cant answer these questions convincingly, then nobody will invest with you.
The question now is what is your business worth? The valuation argument is just that an argument. However, you can use these guidelines: You are probably worth 1-2 times sales. You could also be worth some multiple of your annual profit, but most small businesses dont have much profit so it is better to focus on sales also called revenue. If you do have a patent that can add some value, but it is not likely to be a million dollars, but it could be $25-100,000 or more in some, but rare cases.
Now that you understand the basics, lets be realistic about who you are and what you are qualified to do. The first thing is to understand that somebody who has a great idea and/or invention may not be the best choice to serve as CEO of the business. The reasons are many, but to keep it simple the skills are very different. To invent something is a great skill that is accomplished by someone with incredible drive to work for hours on end trying to find a new way of doing something. Many times this person works alone for long periods of time. Conversely, the typical CEO is more of a manager who oversees the work of others versus having to do everything for him or herself. To effectively grow a business, you need somebody who can delegate work to others. Otherwise, you really dont have a business that can be scaled. The problem with many great inventors is that they think they are the only ones who can do their work. If that is the case, you dont really have a business that can be scaled and as a result, there is no real way for investors to make money because the business will remain too small since the inventor will need to be involved in everything. As we all know there is only so much of any of us to go around. As a result, the best role for some inventors is to serve as a Chief Technology Officer (CTO) or other similar capacity and bring in someone who is more focused on driving revenue. For those inventors who can do this, they have a great chance to see their dreams become reality. For those who cannot, then the chances of success are very slim. Some of the greatest Ideas or inventions I have ever seen are by people who cant let go and get the help they need, because they think as the inventor they need to be involved in every decision and/or have total control. As a result, their ideas and/or inventions are doomed to go to the grave with them without ever making it to market. Remember, investors dont love your business (you do). They only want to make money. Therefore, you have to decide which is more important to you: Making money or being in charge whether you are qualified or not? Always remember, you are seeking funding for a business to make money, not one of your children or a family pet. As a result, you must remove the emotion you attach to your work and focus on making the best decisions you can that will get you the money and the help you need to become a success, even if that means you have to step aside and/or even collect a royalty. Always remember this: Great Ideas + No Money = No Money. How great is Your idea, if you cant adapt yourself as may be necessary to get the money? There is no future in taking a great idea or invention to the grave with you. The real losers in that scenario are you and your family having to live a lifetime of what might have been. Think about it!
This article cannot possibly answer every question you might have about your business or valuation subject, but keep this in mind: Most investors will only buy into your business for what it is worth now and maybe a slight premium, but nobody will invest hundreds of thousands or millions of dollars on a pipe dream. Therefore, you must demonstrate that you will be realistic and responsible for the money you seek and that you will spend money on only those things that will accomplish the goals you need to get to the next level. More importantly, if you dont have the skills necessary to run the business that you can step aside and bring in someone else who can. If you can do this, you will have accomplished the most important milestone an entrepreneur can reach and that is the ability to think like the investor, because the primary goal in ANY business should be to make money. Yes, you can accomplish other goals such as being a Green Company or provide a solution to a problem, but unless you make money, youre not really a business.
Of course, this is just a brief overview of the important considerations you need to account for when you try to raise money for your new large or small business. Furthermore, you need to understand the importance of online marketing as it continues to grow in popularity, since many small businesses can begin to use this inexpensive resource to help grow their businesses and expand their resources to the fullest.

As you begin to develop and/or expand your presence on the Internet for your business consider this: Raising money and generating revenue is necessary for the survival of all businesses. Today, the internet is playing an increasing role in how businesses will compete. Therefore, Social networking sites combined with special promotions is a good way to increase traffic to your site, as well as improve its search ranking inexpensively. Additionally, you can develop a name for yourself as an expert in your field by writing and publishing articles online. However, you will also need to develop various comprehensive strategies, since no one way will work for all businesses as you begin to build a customer base that you can then market to online and offline on a regular basis. As stated earlier in this series, in order to rise above the crowd you will need more than just a website. Therefore, implementing several Internet based solutions over the next 12-24 months will be critical to the long term success for virtually every small and local business in America.


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