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 mistakes makes made by entrepreneurs and how to avoid making them when looking for funding.
1. Not Being Honest
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, try to 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 So, if you are not honest from the beginning any offer of investment may be withdrawn.
2. 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, make sure you understand your business plan 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 a management team that is experienced within your sector and can cover the essential elements of running the business.
If experience or skills are missing from the team 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, and you do not have a roadmap on how they will get back their money. You will put them off from investing in your business.
The only feasible and attractive proposal for a professional investor is a trade sale. 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 that 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 need to do all of your research and make sure you understand your business. You should be an expert in your particular field and be passionate about it!
7. No Proof of Market
It’s going to 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 an investor will invest in your business if you haven’t shown any confidence in the business by investing some of your own money into it.
9. Business Over Valuation
It’s pretty difficult to value a start-up. You should work with your advisor’s 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 any justification.
10. The Business Plan contains irrelevant information
If you are seeking funding from a variety of different sources then you should create different plans for each funding type.
A bank, for instance, is much more interested in the business model and finances of the business and does not want to get burdened with pages of technical information. However, if you are pitching your business to an Angel Investor who is interested in your field of interest they may want to understand all of the technical information and require less financial information to make a decision.
Always consider who is reading your business plan and tailor it to their requirements.
Only very few entrepreneurs get their business funded at 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 make sure you have removed as many of the common mistakes as possible.
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