business funding mistakes

10 Business Funding Mistakes Made By Entrepreneurs And How To Avoid Them

Kurt GraverBusiness Start-up Advice

Are you struggling to get business funding for your start-up?

Most entrepreneurs suffer from funding problems and delays when starting their business.  Getting business funding isn’t easy. However, many entrepreneurs disqualify themselves from most funders’ and investors’ criteria by making simple mistakes.

Let’s look at some of the most common business funding mistakes entrepreneurs make and how to avoid them.

1. Not Being Honest About Your Business

Investors do not like surprises. They want honesty and transparency. The quickest way to lose investor interest is not to be truthful with them about your business. No business is perfect. Give the investor a positive, well-rounded and honest account of your business.

Any offer of investment will usually be dependent on due diligence being successful. So, if you are not honest from the beginning, any investment offer may be withdrawn.

2. You Have A Bad Business Plan

Regardless of how good your business is, if you have a bad business plan, it is unlikely you will get funding.  There are some exceptions to this rule, but it is rare.

Make sure you present to an investor a well-thought-out business plan. Your business plan should contain detailed and plausible information on how you see your business in the next 3-5 years.

If you are presenting your business plan to an investor, ensure you understand it in great detail, even if it was written by someone else.  If the investor is interested in your business, they will ask you questions. If you cannot answer them, your chances of securing funding will decrease.

3. Your Management Team Lack Experience

Not having enough expertise within the team is one of the major reasons why investors do not invest. Fortunately, it is one of the easiest problems to overcome.

You need to demonstrate that you have an experienced management team within your sector and can cover the essential elements of running the business.

If the team lacks experience or skills, it may be worth bringing in someone or identifying a prospective candidate.

4. No Exit Strategy

If you are trying to get funding from investors, you do not have a roadmap on how they will return their money. You will put them off from investing in your business.

A trade sale is the only feasible and attractive proposal for a professional investor. When planning your exit strategy think of who are the likely buyers of your business.

5. Unrealistic Revenue Assumptions

Make sure your revenue expectations are reasonable and backed up by realistic assumptions. Furthermore, be prepared to be challenged about them. You should be able to answer and justify questions about your financial projections.

Managing finances is an essential component of running a business. If you cannot demonstrate this skill to an investor, they will question your ability to run the business.  If finance is one of the skills you are not strong on, then make sure you recruit someone to handle the finances and financial planning for the business.

6. They Don’t Understand Their Business / Market

When presenting your business plan, you must do all your research and ensure you understand your business. You should be an expert in your field and be passionate about it!

7. No Proof of Market

It will be very difficult to get funding for your idea if there is no proof that there is a market. You should be able to prove that there is a market for your business. You need to identify that your business solves a problem, a sustainable market exists and whether the market is growing or shrinking.

8. No Founder Investment

Why would someone else invest in your business if you haven’t? It is very unlikely that an investor will invest in your business if you haven’t shown any confidence in it by investing some of your own money.

9. Business Over Valuation

It isn’t easy to value a start-up. You should work with your advisors to establish a sensible valuation for your business. Don’t be tempted to overvalue your business. Nothing will put off an investor more than an overvalued business without justification.

10. The Business Plan contains irrelevant information

If you seek funding from various sources, you should create different plans for each funding type.

A bank, for instance, is much more interested in the business model and finances and does not want to get burdened with pages of technical information.  However, suppose you are pitching your business to an Angel Investor interested in your field. In that case, they may want to understand all of the technical information and require less financial information to decide.

Always consider who is reading your business plan and tailor it to their requirements.

Conclusion

Only very few entrepreneurs get their businesses funded on their first attempt.  Getting investor feedback, whether good or bad, should be taken positively.  Use the feedback you receive to improve your business and your pitch.  Analyse your pitch and ensure you have removed as many common mistakes as possible.

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