Innovative ways of raising capital for SMEs
Written by Emily Couch
SME’s (small to medium-sized enterprises) can raise capital in a systematically painless manner if the business approaches investors properly. It may appear to be a difficult and time-consuming process, but raising capital can help take a business to the next level of success. Let’s take some time to simplify some of the key steps to obtaining capital.
The first step is to assess the current financial health of your business. You can’t figure out where you need to go financially speaking, if you don’t know where your business stands.
GET CASH FLOW PROBLEMS UNDER CONTROL
Triage is the name of the game. If you have cash flow problems, evaluate where the biggest cash problems are located and devise a plan to get your current cash flow problems under control. Your spending needs to be in control before you can approach future investors to take a chance on your business. Venture capitalists, banks, and private lenders want to see smart plans in place before taking a chance on your business. Nobody wants to give you his or her hard earned money for your business to continue to mismanage capital investments.
Learning to control your short-term cash position will help your business create a long-term strategy that is sustainable. It is a prerequisite when approaching individuals for capital investments to have a solid long-term strategy for your business. Creating a plan for financial turnaround demonstrates the sustainability of the business. It’s common sense, people want to make good investments, and no investor is going to take a chance on a business that cannot forecast its financial viability.
You can take a few steps to help recover your current financial situation. Possibly refinancing current facilities, or the sale and division of unused assets. A more extreme option is a complete sale of the business. You have to figure out what works for your business and how you can show potential investors that your changes have improved the working capital in the business and work toward your long-term financial plan.
TARGET THE RIGHT INVESTORS
The second tip is to target and select the right investors. It’s imperative that you choose investors with a solid track record of making sound and profitable investment decisions. Ensuring that your investors have expertise in your wheelhouse is essential. Investors need to understand the market opportunity in which they are investing, so they can inform businesses, like yours, with a clear and concise expectation of financial gain.
Email pitches are often viewed as junk mail; cold pitching is not the way to go. Networking is a sure fire way to get in front of a variety of investors, banks and venture capitalist. If you can get a formal introduction, you can begin to cultivate a personable business relationship. People do business with people they know, like and trust, and networking helps open doors toward personal communication that email just doesn’t translate.
Make sure you do your due diligence before approaching your target investors. Research their investment portfolio, potentially speak with some of their past and current clients, and have multiple meetings with them before accepting an investment deal.
DON'T BE AFRAID TO SELL YOUR BUSINESS
The most important criteria for investing, is if investors can make a substantial return on their investment, but you still have to sell yourself. At the end of the day, raising capital is a sales process. You have to not only sell the viability of your business, but you have to sell yourself. When you do get a meeting with a potential investor, make sure to show up on time. Be engaging, and know your audience. Doing research on how to appropriately pitch your idea will go a long way. Some investors are incredibly easy going and don’t want to be approached with your 57-page PowerPoint slide. Other investors need that 57-page PowerPoint slide to feel safe investing in your business. Regardless of your pitch method, you should stick to the facts and ensure you are able to pitch your business in a way that gives investors confidence.
With these simple steps you can make significant progress toward obtaining much needed capital for your business. Remember: Investor confidence is key. Don’t cut corners on your strategy for returning their investment with significant reward. Know your industry. You should be completely aware of trends in the market and the economy. If there is a forecast of a market downturn, you have to figure out what makes your business unique enough to survive a plunge in the market.
Ultimately, it’s going to come down to investors return on their capital investment. You know the value of your business and you have an amazing opportunity ahead of you, help investors see your vision and you will be able to raise enough capital to take your business to the next level.