How to Fund a New Business

If America is ever to get its domestic hiring engine in full gear again, new small businesses must lead the way, but only when investment monies are available to kick start the “gearbox” out of neutral.  The uncertainty in our present environment has kept investors on the sidelines, making the funding of a new business that much more difficult in these tough economic times.  The task, however, is not impossible, but the budding entrepreneur must be more persistent in his effort, broaden his network of contacts, and demonstrate that his “idea” is worthy by acquiring clients that will pay good money for his product or service.The past decade has not been good for major portions of the investment community.  In the past ten years, we have witnessed two severe business downturns, the latter greater than any since the “Great Depression”.  After the Internet “bubble” burst, followed by the “911” disaster, many investment funds across the nation withdrew from the action, licking their wounds and raising new capital to help what few viable candidates remained in their respective portfolios.The recent recession only made matters worse.  Most firms have chosen to search for “bargains” among existing operating companies, acting more like private equity companies than angel or venture funds.  Despite this obvious risk aversion tendency, there continues to be an enormous amount of capital searching for higher returns, though sitting idle at present.  For many of these reasons, starting a new business requires greater effort than ever before to secure initial investment capital, and as many business articles will convey to you, the primary reason that a new business fails is due to inadequate funding at every phase of its development.Under these conditions, what is a new entrepreneur to do?  Most investors have been advised to wait until this present uncertainty dissipates before committing any cash to a new venture.  The good news is that money is there for the right business model and the timing is such that preparation and planning issues can be addressed now, rather than later.  Here is a brief roadmap to guide your initial funding efforts:Self-Assessment:  Are you really cut out to be a sole proprietor?  Running a business involves a great deal of stress for you, your family, and your business partners.  Long workweeks, sleepless nights, and active discussions with all manner of personality types will become the routine.  You must be positive, assertive, decisive, and patient in your dealings with others.  You may be your own boss, but you will be “sandwiched” between your customers, vendors, investors, and family members.  If you can handle this, go for it! Today's electronic age does allow for great networking potential on the Internet, but investors and prospective business partners still prefer the “eye-to-eye” approach.  Your local banker can introduce you to many local business forums that meet regularly, usually once a week.  These meetings will permit you to broaden your network of contacts and provide you with helpful advice in areas where you lack experience.Investment Ready Materials:  You may be great marketing person with the “gift-of-gab”, but investors require more than talk.  They want to see a marketing “story” that makes sense and offers potential for growth, but they also want to see a “financial” story that confirms the marketing claims. You may want to utilize software from a company like workday to show how you would effectively manage investment and grant funds, and show how you will be able to efficiently track expenses. If you are not a financial person, seek help in preparing a cohesive business plan that “mirrors” your marketing objectives, and then develop a “pitch” that includes both.The “3 F's”:  You will need to convince “Friends, Family, and Fools” to invest in your idea at the early stage.  If you cannot convince them, why would anyone else buy your story?Local Support:  Your banker can also help you here.  Every state in the union has regional develop centers, incubators, and funding sources that will support your early development phase.  Meet and greet these local agencies.Business Model Confirmation:  Outside investors rarely invest in an idea these days.  They demand confirmation that a customer is willing to pay for your “solution” to their problem.  You must reach this stage before approaching anyone else for major funding resources.Starting a new business is more difficult these days, but it is not an impossible task.  Persistence, networking, and market results will help you get started.

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