Starting your own business can be difficult to fund. A common problem that startups and new businesses face is attracting investors. Many startups can spend years perfecting their product but still struggle in raising enough funds to get their business going, or to scale up.
Having a great product and vision are fantastic when it comes to gaining interest from investors, but new businesses have plenty more things to consider on top of that.
The percentage of startups that fail in their first years in the UK is over 70%, with the main reason cited as being a lack of funding. This guide will give new businesses 6 tips to help ensure the highest chance of receiving funding from investors.
“Investors will want evidence that you know your business back to front,” explains Ben Sweiry of finance startup, Dime Alley.
“Of course, being an expert in your product is crucial, but you should also be able to demonstrate a detailed knowledge of your market.”
“Investors may want information on demographics, group preferences, recent trends, growth possibilities, and a profile of your ideal customer. New businesses should invest time into becoming experts of their markets. This demonstrates a clear vision to investors.”
Have a detailed plan
“Make sure your plan is as thorough and actionable as it can possibly be,” he continues. “The more potential for profit your business has, the higher the investment you receive will likely be. The best way to demonstrate this potential is by a strategic, realistic business plan.”
“Your plan should bring in as much profit as it can while still being realistic. Investors will be less likely to invest in businesses who present them with plans that do not align with market realities.”
Minimise direct costs
“Direct costs are any costs that contribute to your product’s final price,” says Richard Oscar of Rosca Technologies.
“The direct cost is your final price with your profit subtracted from it.”
“Minimising direct costs can mean reducing the price of production. This could mean finding a cheaper supplier of your materials, for example, or restructuring your product.”
“By reducing direct costs to the bare minimum, you increase your profit margins. Documented profits of 30% or more per sale will be very interesting to investors. This kind of history indicates high yields in the future, making them more likely to invest.”
Keep detailed accounts
“Make sure you have prepared well-audited accounts (if needed) for at least the last three years before you start speaking to investors,” Oscar continues.
“Your accounts serve as proof of your successes. They demonstrate your business’s profit potential and projected growth. This can help investors to feel more confident in your business, as they have a detailed breakdown of its financial history.
“Detailed accounts also help your business to remain debt-free, which is essential for most investors.”
Achieve or exceed goals
This is the ideal scenario for every year in a business’s history, but it is particularly important the year before fundraising starts.
Investors have the goal of growing your company, but they want to see that their money is going somewhere wise. Make sure to start approaching investors after a successful year in order to prove that your business is capable of achieving and exceeding its targets.
The typical timeframe for securing investments for your business is half a year, but many businesses need even longer than that, especially if it is still in the start-up stage.