Are you struggling with finances? Ever thought of seeking finances at any lending institution? If yes, what was the outcome? Well … many lending institutions extend their financial gratitude by offering finances to businesses. Your persistent request for finances essentially keeps the banks in business
But why do your businesses fail to land finances? Where do you go wrong?
Now, here’s a short story about my experience while seeking finances at a lending institution back then:
“While running a small startup business back then, I experienced some financial shortages. So, I decided to seek finances to take care of my escalating expenses. With every word I uttered, I created this enchanting vibe that was more convincing to the financiers. In the eyes of the lenders, the ideas were great, but they weren’t satisfied yet. So, they offered to pay a visit to my premise to have a glimpse of what I do for business. I landed the cash and the rest was history.”
How then do you set yourself in the right books of financiers’?
Many businesses especially small businesses and startups shy away from seeking finances to the lending institutions or venture capitalists due to reasons that are best known to them. They’d put off the idea amid fears of being turned down.
Why then do they shy away?
The moment you detest yourself from seeking finances, it might be that you’re not ready for financing. Your approach might be feeble or not convincing enough to invite the financiers on board. In the business circles, the odds of winning finances get higher once your financial plans and business plan are in order. But winning the hearts of financiers’ does not come easy. You must work on the best pick-up lines to convince the lenders.
So, what should you do before seeking finances?
1. Develop a winning Business Model and Plan
As a business owner seeking finances, do you have a business model or a business plan?
The idea of developing a winning business plan and model is not negotiable. There’s no way out about it. You have no choice but to build a bold and in-depth business plan. Make it impressive that the financiers will have no choice but to offer you funds. But then again do you know what a business model or plan say about your business?
For some people, it sounds familiar, while for others, a concept that needs clarification. What then is the difference between the two?
A business model asks the question “what,” while a business plan asks the question “why.”Quite a clear distinction, right?
Think of it this way — you’re in the kitchen ready to prepare this special meal. You have all your ingredients ready and the recipe at hand. The recipe will guide you in preparing the special meal. Now, the recipe hypothetically represents your business plan whereas the special meal your business model.
What do I mean by this?
A business model elaborates your cash flow valuations, revenue streams, sales volume projections, COS, OPEX among others. Without a business model, you’d be operating in a vacuum. All these deliverables offer the platform for your business to operate on. Learn to build a model that outlines the true picture of your financial position.
A business plan unveils how you plan to achieve those deliverables. If for instance, you offer photography studio services, you’ll theoretically have the following:
- number of customers per day
- studio days per customer
- the number of studio days available per month.
These will essentially give you the studio days sold per month. In another word your billable sales volume projections days per month.
Remember, both your business plan and model offer full-proof confidence not only to you but even to the lenders.
2. Recruit a capable and qualified management team
In your business or organization, what do you make of your management abilities? We often count on the capabilities of our experienced management teams to get results. We’d not trade on anything else but competency, transparency, and accountability.
The moment you hire a highly qualified management team, your odds of landing finances gets higher. You not only create a positive vibe amongst the financiers while seeking finances but also trust.
If you feel you lack the relevant experience in the field of hiring, you’ll need to gather a team of partners or mentors to fill the gaps in your knowledge.
Here a case scenario of Iceland regarding mismanagement during the financial crisis
“When the financial world crisis hit the world’s economy in 2008, Iceland was strongly hit hard. Before the banking crisis, Iceland ranked as one of the richest countries in the world. It was almost a Dubai of the North. A small nation on the edge of the arctic circle, there was this feel-good-factor amongst its society. Just like that, everybody could afford to travel abroad, live a lavish life, interest rates were cheaper as money was available. But all that vanished in thin air after the financial crisis.”
For the record: 92 percent of Iceland banking sector came tumbling on the floor.
What happened to Iceland was purely political and grand mismanagement. There was a lack of transparency and accountability on financial management point of view.
3. Having a credible track record on spending
How would you describe yourself when it comes to spending? How would you fair when you look back on your track record on spending? But does it matter on how you spend your money? After all, it’s your money!
As much as money is at your disposal, lack of financial discipline may grind your business to a halt. A greater majority of businesses sleepwalk to the next financial crisis. They’d set unrealistic financial goals that lead them to spend more than what they generate.
But what do lenders look for when it comes to spending?
In the eyes of the lenders, your business presents them with a litmus test. By any standard, they’ll want to know that your business can repay your debt before extending you a loan. Like any other investor, they’d want to know that any money disbursed will be spent responsibly, especially if they’re anticipating returns.
Exercising financial discipline is not easy. But giving it a try is a glimpse of painting a beautiful picture to the financiers. Here is the thing — learn to cultivate a healthy financial profile and maintain a high business credit score. Then follow the best practices to upgrade your credit score: like paying all your bills in full and promptly and regularly checking your credit reports for anomalies.
As numbers don’t lie, there would be enough full-proof of your credibility. An impressive financial history positions you for the financing your growing small business needs.
“In the business world, sometimes the hardest thing isn’t coming up with innovative ideas but knowing which of those ideas are worthy seeking financing.”
4. Creditable financial plan
What better way to find your direction than through a Google map. But, do you stop and take a hard look at the entire network of Google map? The images resemble a large web of interconnectivity of routes spread across a platform. The network shows how to move from point A to point B, in other words, a directional plan.
Just like a Google map, financial plan is equally important.
I believe one way to sabotage yourself from landing finances while seeking finances is not having a financial plan. Lenders, especially angel investors would want to see how you’re planning to use the money. When putting their money on the line to fund a startup, they’ll trade cautiously.
To clear the uncertainty, they’d need to know the sustainability of your venture and how wisely you’d use their resources. Now, to have it work to your advantage, draw a financial road-map. The road-map should project exactly how you’d get from point A — where you and your resources at now — to point B, where you wish to be within the next one to five years.
While you do that give out an in-depth, detailed plan of your estimated business expenses, or how much capital it’d take to lift your business idea off the ground. Additionally, how much it’d cost to keep your business going, in other words — your operating expenses. The facts are out there, all that is remaining is you seeking finances before your business goes into oblivion.
I’d like to know what you’ve done to get ready before seeking financing? Would you share any fact that I might have missed out?
Is there any topic you’d like me to write about, do share that with me in the comments section below?