If you are starting a new business then arranging for the capital to meet all the expenses can be a little bit of a problem. Business loans can be arranged only if the company has been doing business for some time, but most young businesses are looking for opportunities to expand and hence arises the need for other options to raise business capital. The entrepreneurs can consider government grants as another possibility. However, the procedure of obtaining funding through this means is extremely difficult. Almost all the funding in UK is regulated by EU legislation and the European Union itself does not finance anything other than public sector ventures. There are some sites that offer local grants to small businesses and UK entrepreneurs, and this includes local councils and some bigger companies. However, the number of proposals is not too many and the amount of financial support is generally quite limited.
The more widespread and accepted options for business funding in small business are Angel Investors and Venture Capitalists. Both of these have a considerably higher investment power to invest in start-up, small and medium sized business. However they will gain some control over your business in return for the money that they will be putting in. In addition to the money these business investors also offer the experience to the small businesses which can tremendously increase the chances of success of the business. Arranging funding for your small business can take a long time, but the Angel Investments can help you make critical contacts with experienced angel investors who are looking to make an investment.
Why should Investors invest in Small Business
It is important for entrepreneurs to send across the following sentiments to the investors. Investors are needed to take the business to the next level. There is a fantastic product or service that needs to be marketed and the presence of investors will help it to grow further.
All this will ensure that anyone who invests in a small business will do everything possible to ensure that they are making a sound investment. They will check your business plans thoroughly, and make sure that they themselves believe in your business idea and future plans. All this thorough checking will go a long way in the success of the business.
Merits of Investors in Small Business
- When investors invest in small business, both the investor as well as the small business both sand to gain.
- These investors provide not only capital but also their expert advice and valuable business insights.
- The small business newly set up companies do not have to make payments to investors until the business can afford them.
- Borrowing from the bank becomes easier since it increases the capital invested in the business.
Problems of Investors in Small Business
- The profits of the company will be lower since the investors also take away some part.
- Once the investors put their money in your business they tend to take the control of the company in their own hands and try to deal with the business in their own ways.
- Business Investors have a tendency to structure the business in a way that makes it easier to sell their shares in the future.
- Start-up businesses tend to become impatient and and loose their steam mid way.
Control of the business is another issue that usually crops up after some time. Knowledgeable investors usually shy away from a small position in a smaller organization. The investors also tend to refuse to join hands with the small business if they think that the chances of clearing up their investment will be very difficult tough if the company does not do well
Methods to Get Investors for Your Business
A Business plan:
The first step in getting the investors put their money forward is to formulate a business plan. It is important to turn great ideas into workable business ventures. A business plan defines what your business is all about:
It describes the strategies for developing and growing your business and then deciding the ways to meet those goals. Some of the primary factors that you should include in your business plan are as:
- The Business Plan should have a clear and definite long term mission of the company.
- It should list out the details of the CEO, management staff and their experiences.
- The Plan should provide a summary of the market, stating the trends and changes in market share, costs, pricing and competitors.
- Goals and objectives should be stated clearly
Communication with the Investor
Having a business plan in place, the next step is to discuss all the important issues with the investors beforehand. Some of the points that should be communicated are as follows:
- Detailed information regarding your personal credit history and how much security or deposit you are planning to put into the venture.
- The investors need to be informed about the details of competitive landscape also.
- Comprehensive details about the product or service. It is advisable to include a basic marketing and financial plan also. The better ways you can show to the potential investors that you’ve put a lot of effort into this new business, the more interested they will be.
It is important to show the investors that you are open-minded and willing to learn from others. And at the same time organised, driven and fully committed to making your business succeed. You should be able to realize that the investors can provide you not only with money but also their expertise and know-how and valuable insight from their experience. It would be advantageous to make it clear that their involvement, advice and suggestions would always be hugely welcome. They could help either formally by taking a position on the board or informally as an advisor. It is very important to remember that the investor is looking to make money just as you are, and so it will be a kind of a partnership.