Almost every entrepreneur has a start-up financing horror story, how the banker giggled while reviewing the business plan. Because of experiences like these, entrepreneurs often assume that lenders and investors lack either money or good business sense to know a good deal when they see one. But the real reason that most entrepreneurs cannot get financing for their new business is they are just not ready for the money. In other words, if they received the money today, most entrepreneurs would spend it without any long term positive results. Being ready for start-up financing means having a plan for spending the money wisely and being able to prove to others that they will follow it. failing to convince potential lenders and investors that they can add value to their business using these peoples money is a surefire way to be rejected. Here are some of the reasons why entrepreneurs fail to get start-up money:
1. Poor communication: Refers to inadequate description of the business.
2. Insufficient sales and marketing strategies: Remember the old adage: ” Nothing in business happens until someone sells something.” Investors like to see about 30% of a business plan devoted to marketing and selling.
3. Ignoring the negatives: Every business venture faces threats and problems. Investors get nervous if an entrepreneur cannot explain them.
4. Over-emphasis on the product or service. A common tendency of entrepreneurs is to fall in love with their product or service concept. Spend time in selling the entire business concept.
5. No assumptions for financial projections.
6. Insufficient evidence of the market.
7. Failing to know how much money you need.
8. Failing to set yourself and your business apart from the rest.
What can you do to prove you are ready for the financing you need?
1. Your business plan must explain the business, not just the product or service and its competitive advantage.
2. Your business plan must show that you understand the power of the bottom-line, providing a way to pay back loans or produce an attractive return on investment.
3. You must have a clear strategy for marketing your product or service and know what it will cost to make or provide.
4. You must show exactly how you will use the money to meet your company’s goals.
5. You must prove that the business concept will work, that customers will buy your goods or services, before looking for money.