As a Business Consultant and Business Mentor I meet some amazing people who have built their businesses from an idea into very successful operations, as the dedication and shear hard work that they inject into their business is nothing less than epic, yet with many business entities a certain amount of money is required to assist the growth of the business.
Other than the small portion of businesses that are able to start operating, or continue to operate without an injection of capital, most other businesses at some point require an amount of capital for a selection of reasons such as initial infrastructure needs, maybe a downturn in the market, the replacement of aged equipment, or expansion of a business due to business growth.
The portion of business entities that don’t require capital investment tend to have low initial infrastructure investment needs, tend to grow at a slower rate or tend not to seek high investment business expansion.
Some business owners will utilise their own capital to invest in the business, avoiding the need to apply for funds with third party investors to meet the needs of the business. The self-investing business owner has a few advantages in comparison to engaging with a third party investor, such as being able to align the repayment timetable with any unexpected business fluctuations, minimize additional costs such as third party interest rates and similar, and ensure they retain business ownership through not committing a portion of business ownership to a third party investor.
Rather than using their own capital, a few business owners may find it more beneficial to gain capital investment from a third party investor, as they may want to use their own capital elsewhere or simply maintain a secure financial back-up portfolio.
A large portion of business owners and leaders don’t have the luxury of having their own capital to invest in their business and rely heavily on the investor market to support the capital needs of the business.
When seeking capital from a third party investor, it’s valuable to gain an understanding of what the investor wants to gain from their investment and what would encourage the investor to invest in the business. There are a multitude of investor types and not all investors seek to gain a financial benefit from their invested capital, yet most investors will expect a return that is meaningful to them and their investment.
Investors may view their investment return from different lenses ranging from a financial return of X percentage over invested capital, a shareholding percentage of the business, maybe becoming an active director or partner in the business, a merger with another business, or maybe an exclusive arrangement with a particular agency or other business.
Some investors may see their investment benefits through a philanthropy lens supporting a business to provide a positive environmental impact, maybe a societal benefit such as medicine or improved disability equipment, possibly some humanitarian outcome that would benefit communities locally or offshore, or some other tangible outcome other than financial benefits the business may provide.
Regardless of the expectations of the investor, a third party investor will want to know that the business is able to operate in a responsible and competent manner, is able to make a profit, and is able to remain sustainable for the duration of the investment and longer.
The best method of providing the investor the information they require regarding the business is to create a ‘Business Plan’ that documents the journey of the business from its concept to its current state, including the strategy for the business to move forward with the investment the business is seeking.
Some investors like banks and finance companies will request a Business Plan as a mandatory document within the application for capital investment. Many of the private investors will also request a Business Plan to understand the journey of the business and to assess the future viability of the business.
Some business owners find it difficult to produce a Business Plan due to the significant amount of detail required to document the plan, yet when seeking investment for the business, an up-to-date Business Plan will be one of the most important documents a business can own.
If you would like any further Business Mentoring information or support in the understanding of the documenting a Business Plan, or you seek support in working through how to “Get the Money to Run the Business”, please contact us through www.activebss.co.nz/contact or firstname.lastname@example.org