Got a great business idea or a fledgling venture underway that you just know would go gangbusters, if you only had the money to spend on expanding it?
Seeking private investment can be one alternative to taking out a bank loan. It may come in the form of a loan, or as equity finance, which will see you handing over a share in the ownership of your enterprise in exchange for capital investment.
So what are some of the things you need to be on top of before going cap in hand to friends, family or other private investors?
All the numbers, for starters, says The Party People founder Dean Salakas, who earlier this year turned down an offer from Boost Juice founder Janine Allis to invest in his business when he appeared on an episode of Channel Ten’s Shark Tank.
Be ready to share your current and projected sales figures and profits and any other documents which attest to your business bona fides – think tax returns, latest accounts, and copies of any leases and contracts, Salakas tells ShortPress.
Investors will also want to know about your long term goals for the business, how you intend to achieve them, what you’re planning to spend their hard earned cash on and when they can expect to see a return.
Be ready to share your current and projected sales figures and profits and any other documents which attest to your business bona fides…
If, like Salakas, you’re seeking funding to open another store, you’ll need to have potential locations sussed out, a projection of expected sales and profits and an idea of how much the lease and fit-out will cost.
“Think about what you would want to know if you were the investor and if the answer makes sense,” Salakas says.
“If your profit seems high or low, make sure you can justify it.”
And it’s not enough to just know your own business – you’ll appear a far more attractive investment prospect if you can demonstrate deep knowledge of the field you’re playing in and are all over what your competitors are up to.
Think about what you would want to know if you were the investor and if the answer makes sense.
Ironically, the best time to ask outsiders for cash is not when you’re strapped for it, small business coach and businest managing director Rhondalynn Korolak points out.
Potential backers are unlikely to stump up if it becomes obvious you’ll use their money to augment your working capital, rather than for legitimate expansion or commercialisation activities.
“Before hitting investors up for funds, a business owner must have a decent profit and enough cash flow to cover all of their obligations coming due,” Korolak says.
Sylvia Pennington is a Brisbane-based freelance journalist who writes about small business, information technology and personal finance.