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 5 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!your banker. Give him a copy of your prospectus and ask him if he'd look it over and over.
You have to advertise. Your business cannot grow and flourish unless you advertise. Advertising is the "life-blood" of any profitable business. And regardless of where or how you advertise, it's going to cost you in some form or another.
Every successful business is built upon, and continues to thrive, primarily, on good advertising and marketing. The top companies in the world allocate millions of dollars annually to their advertising budgets. Of course, when starting from a garage, basement or kitchen table, you can't quite match their marketing efforts - at least not in the beginning. But there is a way you can approximate their maneuvers without actually spending their kind of money. And that's through "P.I." Advertising.
"P.I." stands for per inquiry. This is a kind of advertising most generally associated with broadcasting, where you pay only for the responses you get to your advertising message. It's very popular - somewhat akin to bartering - and is used by many more advertisers than most people realize. The advantages of PI Advertising are all in favor of the advertiser because with this kind of an advertising arrangement, you pay only for the results the advertising produces.
To get in on this "free" advertising, start with a loose leaf notebook, and about 100 sheets of filler paper. Next, either visit your public library and start poring through the Broadcast Yearbook on radio stations in the U.S., or the Standard Rate and Data Services Directory on Spot Radio. Both these publications will give you just about all the information you could ever want about licensed stations.
An easier way might be to call or visit one of your local radio stations, and ask to borrow (and take home with you) their current copy of either of these volumes. To purchase them outright will cost $50 to $75.
Once you have a copy of either of these publications, select the state or states you want to work first. It's generally best to begin in your home state and work outward from there. If you have a money-making manual, you might want to start first with those states reporting the most unemployment.
Use some old fashioned common sense. Who are the people most likely to be interested in your offer, and where are the largest concentrations of these people? You wouldn't attempt to sell windshield deice canisters in Florida, or suntan lotion in Minnesota during the winter months, would you?
At any rate, once you've got your beginning "target" area decided upon, go through the radio listings for the cities and towns in that area, and jot down in your notebook the names of the general managers, the station call letters, and the addresses. Be sure to list the telephone numbers as well.
On your first try, list only one radio station per city. Pick out the station people most interested in your product would be listening to. This can be determined by the programming description contained within the data block about the station in the Broad casting Yearbook or the SRDS Directory.
Let's say that you're listed 250 different radio stations. It's best to list the stations you want to contact alphabetically by the city or town they're licensed to serve, with a tab separating each state. The next step is either a phone call or a letter to the station manager of each of the stations.
This first contact should be in the way of introducing yourself, and inquiring if they would consider a PI Advertising campaign. You tell the station manager that you have a product you feel will sell very well in his market, and would like to test it before going ahead with a paid advertising program. You must quickly point out that your product sells for, say $5, and that during this test, you would allow him 50% of that for each response his station pulls for you. Explain that you handle everything for him: the writing of the commercials, all accounting and bookkeeping, plus any refunds or complaints that come in. In other words, all he has to do is schedule your commercials on his log, and give them his "best shot." When the responses come in, he counts them, and forwards them on to you for fulfillment. You make out a check for payment to him, and everybody is happy.
If you've contacted him by phone, and he agrees to look over your material, tell him thank you and promise to get a complete "package" in the mail to him immediately. Then do just that. Write a short cover letter, place it on top of your "ready-to-go" PI Advertising Package, and get it in the mail to him without delay.
If you're turned down, and he is not interested in "taking on" any PI Advertising, just tell him thanks, make a notation in your notebook by his name, and go on to your next call. Contacting these people by phone is by far the quickest, least expensive and most productive method of "exploring" for those stations willing to consider your PI proposal. In some cases though, circumstances will deem it to be less expensive to make this initial contact by letter or postcard.
In that case, simply address your card or letter to the person you are trying to contact. Your letter should be positive in tone, straight-forward and complete. Present all the details in logical order on one page, perfectly typed on letterhead paper, and sent in a letterhead envelope. (Rubber-stamped letterheads just won't get past a first glance.) Ideally, you should include a self-addressed and stamped postcard with spaces for positive or negative check marks in answer to your questions: Will you or won't you look over my materials and consider a mutually profitable "Per Inquiry" advertising campaign on your station?
Once you have an agreement from your contact at the radio station that they will look over your materials and give serious consideration for a PI program, move quickly, getting your cover letter and package off by First Class mail, perhaps even Special Delivery.
What this means is that at the same time you organize your "radio station note book," you'll also want to organize your advertising package. Have it all put together and ready to mail just as soon as you have a positive response. Don't allow time for that interest in your program to cool down.
You'll need a follow-up letter. Write one to fit all situations; have 250 copies printed, and then when you're ready to send out a package, all you'll have to do is fill in the business salutation and sign it. If you spoke of different arrangements or a specific matter was discussed in your initial contact, however, type a different letter incorporating comments or answers to the points discussed. This personal touch won't take long, and could pay dividends!
You'll also need at least two thirty-second commercials and two sixty-second commercials. You could write these up, and have 250 copies printed and organized as a part of your PI Advertising Package.
You should also have some sort of advertising contract written up, detailing everything about your program, and how everything is to be handled; how and when payment to the radio station is to be made, plus special paragraphs relative to refunds, complaints, and liabilities. All this can be very quickly written up and printed in lots of 250 or more on carbonless multi-part snap-out business forms.
Finally, you should include a self-addressed and stamped postcard the radio station can use to let you know that they are going to use your PI Advertising program, when they will start running your commercials on the air, and how often, and during which time periods. Again, you simply type out the wording in the form you want to use on these "reply postcards," and have copies printed for your use in these mailings.
To review this program: Your first step is the initial contact after searching through the SRDS or Broadcasting Yearbook. Actual contact with the stations is by phone or mail. When turned down, simply say thanks, and go on to the next station on your list. For those who want to know more about your proposal, you immediately get a PI Advertising Package off to them via the fastest way possible. Don't let the interest wane.
Your Advertising Package should contain the following:
- Cover letter
- Sample brochure, product literature
- Thirty-second and sixty-second commercials
- PI Advertising Contract
- Self-addressed, stamped postcard for station acknowledgment and acceptance of your program.
Before you ask why you need an acknowledgment postcard when you have already given them a contract, remember that everything about business changes from day to day - conditions change, people get busy, and other things come up. The station manager may sign a contract with your advertising to begin the 1st of March. The contract is signed on the 1st of January, but when March 1 rolls around, he may have forgotten, been replaced, or even decided against running your program. A lot of paper seemingly "covering all the minute details" can be very impressive to many radio station managers, and convince them that your company is a good one to do business with.
Let's say that right now you're impatient to get started with your own PI Advertising campaign. Before you "jump off the deep end," remember this: Radio station people are just as professional and dedicated as anyone else in business - even more so in some instances - so be sure you have a product or service that lends itself well to selling via the radio inquiry system.
Anything can be sold, and sold easily with any method you decide upon, providing you present it from the right angle. "Hello out there! Who wants to buy a mailing list for 10 cents a thousand names?" wouldn't even be allowed on the air. However, if you have the addresses of the top 100 movie stars, and you put together an idea enabling the people to write to them direct, you might have a winner, and sell a lot of mailing lists of the stars.
At the bottom line, a lot is riding on the content of your commercial - the benefits you suggest to the listener, and how easy it is for him to enjoy those benefits. For in stance, if you have a new book on how to find jobs when there aren't any jobs: You want to talk to people who are desperately searching for employment. You have to appeal to them in words that not only "perk up" their ears, but cause them to feel that whatever it is that you're offering will solve their problems. It's the product, and in the writing of the advertising message about that product are going to bring in those responses.
Radio station managers are sales people, and sales people the world over will be sold on your idea if you put your selling package together properly. And if the responses come in to your first offer, you have set yourself up for an entire series of successes. Success has a "ripple effect," but you have to start on that first one.