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Financial Literacy Series - Topic 2: 6 Key Pieces of Advice When Looking for Funding


6 Key Pieces of Advice When Looking For Funding; picture of one person helping another

  1. Know how much you need

Funders will require you to know how much you need to raise, what you need it for, and be ready to justify it with supporting documentation. Private equity sources, like venture capitalist, anticipate that you will require multiple rounds of funding; therefore, they will also need to know  when and how much you will need to raise in future rounds of funding. If you have not built these into your business plan, they will not take you seriously.

 

  1. Do NOT use operating monies to purchase assets

Your operating monies are meant to be used to cover day to day expenses, to run the business; not to purchase assets. The impact on cashflow should always be the major consideration driving your finance decisions. To purchase assets, match the type of asset that you want to raise money for to the proper type of funding to cover it.

 

  1. Match the term of your financing to the expected life span of the asset to be purchased

It should be self evident that you do not want to be paying for equipment when it is no longer of use to you.

 

  1. Make funding decisions, at all times, based on how they will impact your cashflow and ability to pay your bills as they become due

When looking for funding your foremost consideration should be cashflow. This is true whatever type of funding you decide to pursue and interest rates only become significant to your decision making when they reach credit card rates. Having cashflow to pay your bills when they are due is what will keep you in business, which is why borrowing money to fix cashflow issues is a no-no; it just compounds the problem.  This focus also highlights the importance of having an up-to-date business plan that includes a detailed financial forecast, which is supported by market research and projections for your type of industry.

 

  1. Do not borrow more than you need

When seeking money from conventional lenders, the amount you are requesting should be realistic for what you want to do. If you borrow more than you need, your payments will be higher and this will negatively impact your cashflow. Also, if you ask for more than you really need this can increase your chance of getting a negative answer to your request.

 

  1. Be prepared to make a personal commitment to the business

Whether is it conventional lenders or investors, they will expect a form of commitment to show your belief in what you are doing. For conventional lenders the commitment could be in the form of cash or personal guarantee. For investors sweat equity may also be considered.



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