NFIB

Five Financing Flaws to Avoid
04/ 01/ 2002

by Rush Jeffrey and Laura Campbell

In the world of fundraising, pitfalls are a certainty. Whether you fall into the Grand Canyon or just stub your toe along the way depends on how well you do in avoiding these common financing mistakes.

1. Being unprepared. Scores of entrepreneurs seek investors' attention. A well-developed and realistic business plan is critical to make them take notice. The plan should discuss the business, management team, industry trends, competitors, financial projections, and use of proceeds. Be sure to create a concise executive summary to serve as an overview of your company.

2. Misunderstanding the investor. A common mistake is to target funding sources with goals inconsistent from yours. Cecil Phillips, CEO of Place Collegiate Properties, an Atlanta-based national developer of student housing communities credits his company's (http://www.theplacetolive.com) upfront research with their success in finding funding sources that meet their specific needs. "We've fueled the growth of our company with funding from a diverse, but focused group of investors and lenders, " he says. Understand the needs and preferences of potential investors.

3. Failing to show you're a good bet. Investors are taking a gamble on your future success. Though you can't supply them with any guarantees, show them that their reward should warrant their risk. Surround yourself witha solid management team that has a successful track record. Demonstrate how your venture can create a superior return for investors. Be sure to show the investors that their rewards will be realized within a reasonable period of time.

4. Lacking a backup plan. You can do your homework, present a great business plan, align your goals with an investor, and still not get the funding. Having a backup plan protects your business. At the heart of any such plan is effective cash flow management. "Cash is king" especially in tight times.

5. Giving up. Securing capital is an arduous process that can take weeks, months, or even years. "Investors want to back entrepreneurs who demonstrate drive and determination, not those who give up after the first few inevitable setbacks," says Phillips. "How you approach fundraising can be a clue to how you overcome business challenges in general, and investors look for teams with a winning attitude."

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This article originally appeared in the January/February 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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