Capital is a crucial factor that contributes to the building of new businesses or for the growth of existing business. Capital can be in many different forms, from equity investment, commercial debt or a mixture of the two. In this regard, we cannot evade raising capital for business and this is why we pay much attention to business valuation; to know the worth of the market value of a company.
We will discuss briefly possible questions that financiers pose to those who seeks business funding and guide you on how to provide convincing answers to these questions.
- What are your missions, visions and targeted objectives?
To Receive Business funding, you must provide compelling vision and mission statement and strategic objectives. In selling a company’s initiative to financier, you must present an appealing plan with strong principles. What are the goals and rationale behind setting up the business? Define in clear terms what the company will do and what it won’t do. Try to frame a “strategic objective” that is clearly defined, convincible and understandable.
- Who are you and the persons involved in your company?
The branches of a company are key and could serve as a foundation for success. This is one of the reasons you must have your management team that plays the role of a backbone alongside your employees – let this serve as the internal tribe. The external tribe should constitute of people outside the business domain that renders you their help – this could be your lawyer, accountant or other informal advisory board involving your key customers. Your stated mission and these tribes help you in selling your company’s to potentially any lender and this is why it is important to have an clear business objective and tribes that are readily available to work and provide you advice when needed.
- What is your company’s area of specialization and market’s niche?
One could detect the potential of a business investment from the market niche and specialization that a company gives focus to; what enticing segment and the unique selling point (USP) does your business hope to address. A lender must be aware of this especially when they offering unsecured business funding.
- What exceptional plan do you have to attract customers to buy from you and not someone else?
Every market is exposed to competition regardless the niche you chose to be in. You have to be familiar with the company direct and indirect competition. I call this share of wallet and you need to explicitly define who is your competition and how your products and services are different. Try to ensure that your product has a defined feature, advantage and benefit that will always attract your customers to choose your business instead of your rivals.
What are your strategies on placing your products or service in the hands of your customers, who is going to benefit from your product or service?
Having clearly defined the products and service that someone earnestly need, it is important to draw out strategies on placing that value in the hands of your customers. What are your means of distribution? Who are your exact customers? For instance, Intel doesn’t sell to the direct consumers and companies that utilizes its microprocessors but to digital manufacturers who make credible laptop and devices; making technology indispensable. You have to be able to understand your value and supply chain.
- Can you build a systematic, automated business that is independent of you so you can sell it?
Not all business has a long life span and this is why many business plan as an exit plan. But beyond that, how do you intend to build a systematic and automated business that is independent of you. There isn’t a business founder in history that has coordinated their businesses forever. Investors shows interest on exit plan so they will detect if the business was built on the owner.
- What is the financial return?
The persuasion of lenders to invest on one’s business is made easier with numbers. What are your estimated possible profit and loss for the next 3, 5 years? What will be the total cash flow at the end of every business year? As the business progress, is the derived cash flow sufficient to foster sudden and further growth? Or does the business require more funding to fasten profit derivation? What will be the business valuation and how inviting it is for lenders to invest? These are the necessary look-outs that investors make for as to know the financial return that they will accumulate at the exit of the business. You need to comprehend how prospective investors think and how you sell your business proportion to them. All sme investment must be critical enough for them to sell two things: their products and their abilities to attract enough interest for their investors with limited risk.
- What are the risks involved?
There’s a presence of risk when you buy and sell business especially with SME investment. Learn in advance what are your plans to minimize financial and operational risk in your business?
Financial risk: Lenders watch out to companies who has it in mind the need to escape bankruptcy. How do you intend to downplay your likelihood of losing the money? What convincing lay down plans do you have for your investors not to be scared of bankruptcy?
Operational risk: what are the possible events that could facilitates business failure and what are your contingency plans to avert such?
- Why do you seek for a funding?
Business plans are made faulty when they exempt the motive behind business funding. Payment of employees, acquisition of assets, working capital and other reasons behind the need for business funding.
- Do you have an exit strategy?
To wrap your business adventure, you need to make an exit strategy to put the companies for sale. What are the plans you have in stock for your exiting the business?