Seeking out financing for your small business comes after a few preliminary steps need to be taken.
Start with the creation of a carefully thought out business model, said Michael Donahue of Toronto Business Development Centre.
This business model consists of two main parts, said Donahue: Understanding the need in the marketplace and what solution you have for that need.
“Small businesses have to know what the value is for their customers and how they’re going to make and earn money at any point in time,” said Donahue. They have to monetize and establish how to get value in return for their service, what to charge, and if clients will pay for them.
With this, you can then gain some initial investing from friends, family, or angel investors, said Donahue.
The next step, according Chris Mihalicz, President and CEO at Three Point Turn Inc., is to build up your business’s credit.
The software development startup gained funding from Dell and then set up a secure line of credit with TD. After securing a large portion of their cash against the line of credit, they were able to begin building credit.
“Entrepreneurs need to think strategically and plan to be credit worthy,” said Donahue, who suggested getting a corporate credit card as the first stage, in order to establish credit history.
“I think a large part is to make sure they have good financial records,” said Donahue on demonstrating good financial management over a period of time. As a small business, you can share those records with the bank, establishing confidence. The idea is to minimize the bank’s exposure to risk in your business.
“If they’re not strong at record keeping, they should be out getting a good bookkeeper or the advice of an accountant,” he said.
Donahue emphasized the importance of small businesses to develop a relationship with their commercial account manager.
“Their commercial account manager really understands their business, what they’re out to accomplish, who their key customers are, and what their goals are for the future.”
He said that small businesses should consider them to be almost a strategic partner for their business.
Once your small business has established a strong business model and credit history, it’s important to plan a pitch that is ready to go at any given moment, says Micheal Nussbacher, CEO of Epilogger Inc., a social media app connecting people through event sharing.
“Show them a quick overview of the company and how you plan to make money, how you plan to market a product and who you plan to hire,” said Nussbacher.
Mihalicz of Three Point Turn notes that at this stage, your options are typically to fund yourself through business operation, seek out venture capitalists, as well as government programs and commercial banks.
He said to make sure to include a number of specifics to your company in your proposal: number of employees, projects, customers, associated partners, awards and certification, countries you’ve serviced, your debt service ratio, and your business lines.
You should be asking for a specific amount, said Nussbacher.
“Investors invest in the people more than anything else,” said Nussbacher, who emphasized execution as an important part of the proposal. “There’s always money for entrepreneurs who have a good idea. You have to have the tenacity to stick with it.”
One final thing to make sure of is to look for ways in which investors can give you value outside of finances, whether it’s through their network or their connections in your field, said Nussbacher.
“Some people think it’s a numbers game, but I think that numbers have become really small,” he said.