Every business idea requires money, no matter how much or how little, to turn it into a viable venture. Your business plan may be excellent but that doesn’t mean there’s a string of investors waiting in the wings to throw money at you.
A lot of research and planning are required before you can start to look for money for your startup. But how do you know your business idea is ready to be financed? Fortunately, there are various signs that indicate your readiness to move from the initial planning phase to actively pursue funding.
Regardless of which funding option you’re considering, you will have to convince your potential investors that your idea is worth thinking about. Timing is essential. If you approach financiers too early and lack answers to their questions, they may turn you away and refuse to look at another proposal from you in future.
For this reason, www.qualitycompanyformations.co.uk have put together a list of 7 signs which indicates your readiness to finance your business idea.
You can verify that your idea serves a genuine need
The only way for your startup to succeed is for it to have a decent customer base. Unfortunately, you can only start building a customer base once your business gets off the ground. Which means you can rarely go begging for money with an existing customer base to back you up.
What you can do, is to make a prediction based on market research identifying a need or needs to be met by your idea. A business idea is only viable if it provides a solution or service to a big enough customer base to be profitable.
How do you know whether your business is going to serve a true need? By identifying your target customers and understanding their behaviour. There are different ways to do this, including many online tools if you’re looking at a global market. If your market is more local, old-style market research with questionnaires or telemarketing remains very effective.
Once you know that there’s a genuine need for a service or product, the next step is to identify exactly what it is that you’re going to sell. You should know how it works and what sales method will work best. Think about pricing and whether your service or product is affordable. At the same time, it’s good to start identifying potential problems and come up with possible solutions.
Investors worth their salt will require a due diligence report. If they ask, you should be able to tell them how you’re planning to establish your business in the existing market, what counts in your favour, and what the potential pitfalls and their solutions are.
Your product or service really works
An idea and market research identifying a need is great but does the product or service work? Funders will want to know. Can you provide the evidence? You should be able to.
You can only request financing for your business idea when you have something concrete to show potential investors. It could be a prototype of a physical product or a beta version of an online service or product. Also, come armed with test reports, reviews and research to back up your claims.
Providing testimonials from prototypical customers will go a long way to drive your point home. Or ask a major prospective client to write a motivation which you can include in your pitch for financing.
You have a completed business model and plan
A proposed product or service and an identified need are useless without a well-thought-out business model and plan to back it up. This is essentially what separates the wannabe prospective entrepreneur from the one who succeeds.
A business plan sets out all the potential revenue streams of your business while the business plan is the roadmap to acquiring the revenue. It sets out the management and staff structure of the business, the legal structure, the equipment that’s required, as well as a marketing plan.
There’s a huge difference between saying, “I need money for my idea,” and, “I need £10,000 for product development, £15,000 for office rental, £20,000 for equipment and £3,000 for advertising.”
Your business model and plan are the blueprints of your business idea. It’s something to show potential investors how committed you are to turn your idea into a successful business. It’s also something for you to fall back on whenever you start to doubt your idea and its execution.
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You have a separate financial plan
True need – checked.
Workable service or product – checked.
Business model – checked.
Business plan – checked.
Ready to meet funders? – No!
What is the most important thing a potential investor would want to see when considering your business idea? A financial plan, of course.
No matter what kind of financier you’re pitching to, they’ll all want to know how you plan to use their money. Nothing is more off-putting to an investor than an unprepared prospective entrepreneur who hasn’t made his or her financial sums. You should determine exactly how much money you need, explain how you arrived at that amount, and give details about how it’s going to be used.
You have a proven record of using money responsibly
Potential investors aren’t only interested in how you’re going to manage your finances in the future. To them, it’s even more important to know how you spent your pennies in the past. Therefore, you should be prepared to answer questions and provide information about your current and past financial situation.
Creating a good financial track record is essential to prove to potential funders that you can work responsibly with their money. It’s not something to be done in a day or even a month, so start focusing on it right away.
Cultivating a healthy financial profile is not as difficult as it sounds. You can begin by paying your bills on time and in full. Applying for a business credit card is another way to help you build a high business credit score.
You can rely on a professional team to execute your business idea
No man can operate or achieve success in isolation. Your idea may be your own but developing it and turning it into a viable business will depend on the strengths of a team of people.
Know your own strengths and time constraints before deciding about appointing capable and qualified people to help you run your startup. Are you capable of handling the first stages of development and business growth personally? If not, you must either undergo training or seek assistance from external resources.
Take into account that your needs may change as your business grow. Some professionals, like auditors or tax advisors, are only needed on a part-time basis at first, while others, like a sales manager, could be needed on a full-time basis right from the start.
Remember, not everyone on your team must be paid professionals. Do you know successful entrepreneurs, or do you have a friend or family member with experience in running a business? Ask them to act as mentors. Don’t be afraid to admit you don’t know everything.
You have something to offer potential investors
Ask yourself what payoff you can offer your investors. This can be different things for different kinds of investors. Individual investors may want a projected payout after a certain time. Others would want a share of your profits. In the case of a crowdfunding initiative, you may have to give out sample products.
Even if you’re not able to 100% confirm a specific return on investment, you must at least have something in mind when meeting with potential funders. It will give you a basis from where to negotiate the details of a realistic payoff.
Many prospective entrepreneurs are working on more than one business idea at a time. Knowing which one is worthy of financing and when to actually pursue financing, is often harder than just developing an idea.
These 7 signs can help you establish your readiness to approach potential investors to start turning your idea into a viable business. Don’t worry if you’re missing out on one or two signs or if they aren’t as polished yet. If you react positively to most of them, you are ready to provide financiers with enough evidence to base a funding decision on.
Your idea is sure to ring true with the right type of investor if you can convince them you did your homework.
Watching out for these signs and ticking them off your checklist could at least help you find the money to make the next stage of your business idea happen.
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