The investor checklist
If you’re too busy looking for funding, you aren’t putting your time and energy into building a business that investors want to back. Don’t fall into this trap.
Last year we were fortunate enough to pitch our start-up, Plan My Wedding, to the Sharks in South Africa’s inaugural Shark Tank. Even more exciting, we were one of the few businesses that secured an investment.
What the entire experience has taught us is that as start-ups, we place too much emphasis on the importance of funding. Attracting an investor is exciting, and the growth that funding can bring is positive for the business if used correctly, but the reason we received funding in the first place is because we were already building a sustainable business. That’s the kind of business investors are attracted to.
Too many start-ups focus on finding funding to the detriment of actually building and bootstrapping their start-ups.
Here’s the reality: The way to get funded is to get started. Too many entrepreneurs spend their time pitching investors, planning and refining their business plan, rather than building a business that investors want to invest in.
Investors can bring immense value to your business, both in funding and mentorship. But, what they are really interested in is a return on their investment. Your investor won’t have the same amount of passion, drive and willingness to succeed as you do in the business you’ve created. That’s your job. They also might not be able to give you the time you need, at the time you need it.
As the entrepreneur, it’s up to you to take action on what you know or need to know in order to work on your business. And here’s the key that so many start-ups miss: The ability to do that is one of the core reasons an investor will invest in you in the first place.
Before we secured our spot on Shark Tank, we were already pulling together the resources we could get our hands on. We were living the business, bootstrapping it and hustling every step of the way. We didn’t view finding an investor as the be-all and end-all of our business. We were making it happen. Of course, finance is important — even necessary — to business growth. But there are many ways to grow revenues; funding is just one option.
We’ve also learnt that if you really want to secure funding, you need to tick all these boxes anyway. Investors back entrepreneurs who are already out there, finding innovative ways to grow their start-ups.
Here’s what we’ve done to grow our business, and why we believe the Sharks wanted to back us.
1Get on the journey together
Entrepreneurship is lonely, but it doesn’t need to be. Find other start-ups who are on the same journey and help each other out with tips and advice in each of your areas of expertise.
Leverage each others’ knowledge bases and networks. We have two great contacts who recently started their own social media companies and who constantly give us tips on how to engage with people over social media. The key point here is ‘learn what you can from whoever you can.’
2Connect and join networks
Get out there and meet liked-minded people. There are various hubs and local incubators in every city (Google Start-up Grind is a great event held monthly in most cities). We constantly attend networking events that bring together seasoned entrepreneurs, speakers and the local start-up community.
These are a platform for knowledge exchange, with speakers from local incubators and venture capital firms sharing their own experiences and lessons in business planning and expansion.
This way you can combine the best in local and international pitching with live streaming of international events, training workshops and guest speakers, all aimed at keeping entrepreneurs informed and equipped with the right tools.
We tap into every free webinar or talk on a subject we’re interested in that we can. We also formed a group with fellow entrepreneurs where we meet once a month and help each other talk through business challenges and connect each other with other entrepreneurs.
3Convince people to work for you for next to nothing
You’re not ready to hire a big team, but you also can’t do absolutely everything alone. So what are your options? We’ve started leveraging our contacts and forming barter agreements. If you need extra hands, interns are a great option and this creates a platform for them to learn and grow within your business. They are often hungry to learn and prove themselves, as well as gain experience, and will go beyond the call of duty to prove this.
In the beginning, keep costs low and make progress on as little capital as you can. Keep your costs to a minimum, even if you have to use some personal funds or funds from friends and family. There are two benefits to running a lean start-up.
It allows you to bootstrap your business, and if you decide to approach investors, you can prove that you can budget and stick to your budget. Investors aren’t there to pay flashy salaries and help you buy a BMW. They want to see that you can be frugal and use their cash to build the business.
4Focus on revenue
One of our investors has a good anecdote explaining the importance of revenue: Before you can go anywhere, you need to put petrol in your car. You can worry about your speed (profits) when you hit the freeway and start gaining more momentum. In other words, create a product or service that you can start selling.
If you can’t do this because you’re building an expensive prototype, use your professional skills to launch a side business to support your start-up until it generates revenue.
In our business, we didn’t have enough funds to complete a phase of our website. So we started focusing on other revenue avenues. For example, doing the planning of a client’s wedding ourselves instead of through the site where it was done for them. My business partner, Chelsea uses her website developer skills (which she taught herself through a free online training resource, EDX) and helps people design their websites. She offers this service to other entrepreneurs.
I’m doing coaching sessions with my certified training in NLP (Neuro-Linguistic Programming) and ASE (Authentic Self-Empowerment), where I help entrepreneurs deal with the mental side of owning their own businesses and the various self-limiting beliefs and challenges entrepreneurs face.
Build additional finance streams to finance your future
With these additional income streams, we finance future product improvements and development.
But be careful; you don’t want to lose focus. As a start-up, consider these questions when approaching any new revenue stream: Will this ultimately distract you from your primary purpose? Can you adequately juggle multiple projects at once? Are you disciplined enough to ignore ‘paying work’ when necessary?
5Hustle (get busy)
This is the be-all and end-all of current entrepreneurial catch phrases, and it basically means: To proceed or work rapidly or energetically; to hustle about putting your business in order. If you need followers, likes or leads, go on any of the social media platforms and search, add and befriend those in your target market or people who you feel could be influencers.
This not only lets you see what they’re up to (and what they care about), but helps them to build a mental image of you and your business, which helps you build rapport before you offer them your service. You need to be out there. You never know which contact might lead you onto bigger deals. If you don’t try, you won’t succeed.
6Be an expert
Whatever field you’re in, focus on becoming the expert in your field. Research your market, industry and best practice extensively. Understand your customers and their needs. Find or add key features or service offerings that will make you stand out from your competitors.
Explore ways to give your customers better value at a lower price than your competitors. Innovative technology (new entrants into the market) and services have a long, proven history of upsetting more established firms. Every day we find ways to do things faster, better and cheaper.
As start-ups, we have many advantages. We’re smaller and more adaptable to change and we can adjust our strategy and focus faster than more established businesses. With Plan My Wedding, we have designed extra features and resources to our site that will guide couples through their wedding planning journey.
Offer what your competition does, and more
While some businesses in our field are directories with tools to download, we offer this and more. Ours is now a ‘one stop shop,’ encompassing all the components of planning a wedding into a single platform. No site offers a guided process with all the extra features we can and will offer, and we’ve capitalised on that gap.
We also know that eventually another company will offer even more, and so we’re aware that service needs to play a major part in our business and our brand. We have representatives in each area of the industry that manage and help vendors improve their businesses on our platform. This keeps us relevant and the go-to-choice for suppliers.
Pulling it all together
Don’t discount the role funding can play in your business. The right investors will help you grow your business. Just don’t view investment as your only growth tool. There is so much you can do, on your own. Focus on what you want, on where you want your business to be one year, five years and ten years from now. Fix it in your mind and create your own reality.
Don’t pay attention to the odds. They’re stacked against start-ups, and if we focused on them no-one would ever live their entrepreneurial dream. Get out there and make it happen.
And then the magic happens: Your business is fundable because all your basics are in place, and now you have the luxury of choosing whether you want that investment or not. You’re no longer chasing money; you’re strategically building your business.
6 Money Management Tips For First-Time Entrepreneurs
That $5 coffee every morning isn’t taking you to the next level any faster than brewing a pot at the office.
How many times have you been told that saving money is a good thing? Financial specialists recommend that you save a bit of money every month, but that’s easier said than done. After all, it’s not uncommon for people to live paycheck to pay cheque.
However, if you want to start a company, you’ll need to break away from this cycle and start budgeting and saving. At times, this will be a trying task, but it must be done if you want to invest in your future as an entrepreneur.
If you want to start managing your money more effectively and set yourself up to become an entrepreneur, follow the six tips below. With these techniques in your arsenal, you’ll start so see immediate changes, and you’ll set good behaviours in motion that’ll serve you throughout your career as an entrepreneur.
1. Prioritise organisation
When you are organised, you can track every facet of your finances. Record all of your financial information in one place so you can refer to it and keep track of your progress.
When you chronicle all of your financial information, you may want to try and organise it by category. For example, when you are recording your current costs, you can categorise them as “urgent” and “future.”
Not only will this system help you stay on top of your personal finances, but it’ll prepare you for entrepreneurial success because it’s a directly transferable skill.
Related: Smart Money For Small Businesses
2. Check your credit
According to a recent MoneyTips survey, nearly 30 percent of people don’t know their credit score. If you are among this group, it’s time to request a free credit report. Once you know your number, assuming money’s tight, feel free to use a few do-it-yourself credit repair techniques to quickly improve your score.
Understanding your credit score and improving it to the best of your ability is paramount when it comes to money management. A little-known fact among aspiring entrepreneurs is that the funding a new business receives is often dependent on the founder’s credit score.
3. Save where you can
People often cringe when they think about cutting back. Fortunately, there are several painless ways to save. Look at your daily habits and see if you have any spending trends. For example, if you spend $5 every day on lattes, you might consider cutting back and only having the expensive latte every other day. Slowly, you’ll get used to this new habit, and your bank account will reap the rewards.
4. Search for additional information
Subscribe to websites and follow podcasts that offer advice on money management. Also, keep your eyes peeled for informative outlets that speak directly about entrepreneurial finances and follow them, too.
5. Set long- and short-term goals
Have you ever noticed that people want to reach their goals in as little time as possible? If you pick up almost any given health magazine, it’ll claim that it can help you achieve extreme results in little to no time.
Unfortunately, crash diets are often ineffective, and “get rich quick” money management techniques often lack substance.
It’s hard to accept that your goals will take time to accomplish, which is why you create short- and long-term goals. In either case, aim to make goals that are specific, measurable, attainable, relevant and time-based. Ideally, accomplishing your short-term goals will give you the positive feedback that you need to continue striving for your long-term goals.
6. Find a mentor
If you manage your personal finances and entrepreneurial finances, one thing is certain – at times, it will feel like you can’t keep up with everything. Financial planning can be difficult, and it’s not uncommon for it to feel overwhelming.
As an individual, you can seek out mentors that can help you with personal finances. As an entrepreneur, you can continue to work with these people or seek out more established financial consultants that provide you with guidance you need to run your business.
Managing your finances is a trying and rewarding experience. It will feel messy at times, but the more you practice, the more you’ll improve your personal finances and set yourself up for entrepreneurial money management success.
This article was originally posted here on Entrepreneur.com.
How To Raise Working Capital Finance
There are more than 150 working capital funds available for SMEs in South Africa. Here’s what you need to know to access them.
A healthy cash flow is the life blood of a business. The reality is that most businesses experience cash flow problems from time to time, which could be caused by a structural problem in your supply chain, inadequate debtor controls, poor pricing structures, bad planning, too much capital being tied up in stock or possibly the impact of unplanned growth on your existing resources.
Whatever the reason, the good news is that there are more than 150 different working capital funds available for SMEs in South Africa. Working capital loans are short-term loans that are designed to provide financial bridging to address cash flow needs.
The more you understand about how these funds work, the better you will be able to identify the most appropriate option for your specific needs.
Overdrafts and credit cards
Overdrafts and credit card facilities are a good option for relatively small, short-term cash flow problems. Most banks are willing to provide profitable businesses with overdrafts and credit facilities and you will only be charged interest on the money you use. Some banks charge a small monthly fee for these facilities even if you don’t use them, but this is a small price to pay for the convenience of being able to meet financial obligations.
Related: Equity Crowdfunding In SA Explained
Also known as getting upfront cash to fund the work for an approved contract. If the reason for the cash flow problem is high sales volumes that result in a temporary cash flow issue, contract finance can be a good option. Contract financiers want to know that your client is reputable and has a good payment history. They’ll also want assurance that you have the knowledge and experience to fulfil the terms of the contract.
First prize is contract finance that enables you to control both the finance and the contract work although in some cases the lender will insist on controlling the finance and may even want involvement in managing the project. Most contract financiers charge an interest rate linked to prime and you will also be charged for drawing up cession documents if this is relevant.
Debtor finance or invoice financing
Also known as getting cash while waiting for customers to pay invoices. If the cash crunch is caused by customers who will take a long time to pay you, debtor finance can be useful. In this case, unlike contract finance where the finance is provided prior to the work being completed, debtor finance requires that the work has already been done and that the customer has been invoiced. As with contract finance, the credibility and credit history of the client is key to lenders as they rely on their ability to pay your invoice.
On average you can raise between 75% and 80% of the value of the invoice within a day or two of sending the invoice to your customer. There is usually an administrative fee to be paid plus interest on the loan — it can be an expensive way of getting finance but it is better than waiting 90 or 120 days for your customer to pay you if you have cash flow constraints. Debtor financiers offer two options — invoice discounting and factoring. Factoring is when your client pays the lender who then returns the outstanding portion of the invoice to you (less their fees).
Invoice discounting is where the customer pays you and you pay the lender i.e. the client does not know that you have borrowed against their invoice. There are usually big penalty costs for late payments. Be aware that if the client does not pay by the specified date agreed with the lender, you will incur additional penalty costs.
For businesses that operate in the retail sector and generate their revenue from debit or credit cards or EFTs there are lenders who provide loans that are repaid by deducting a small percentage of daily sales. You will need to generate a regular income of at least R30 000 monthly to qualify for this type of finance. The useful aspect is that repayments vary according to income generated. During busier months, you’ll pay more, and less during quiet periods.
Term loans are another popular way of raising finance to cover cash flow gaps. The money is loaned for a fixed period and you agree to repay at regular intervals. Interest charges are usually linked to prime and the rate is linked to your risk profile. The duration of term loans varies according to the business’s needs and lender’s terms.
You will be expected to provide collateral to raise a term loan. Lenders will also check your credit rating and financial statements, business plan and possibly the order book before they agree to lend you money.
What working capital funders expect
The key to obtaining working capital funding is understanding the lenders’ risk. To minimise their risks, lenders will require security for the loan. Providing collateral is often difficult for entrepreneurs who do not own property or have assets or investments that can be ceded to the lender for the duration of the loan.
Lenders will ask you for a list of personal assets and liabilities and based on this information, they may ask you to sign personal surety for the loan. If you do not own sufficient assets, you’ll need to find someone who does who is willing to stand surety for your loan. This means that if the business fails to repay the loan, the lender will approach the person who signed surety, to settle the debt.
For terms loans, retail finance, overdrafts and credit cards, the lender will focus on the financial strength of your business and its trading history. They usually only consider companies that have been in operation for at least a year and can show that the business is profitable, has a regular income and achieves good credit scores. For contract finance and debtor finance, lenders focus on the quality of your client and may fund working capital advances to businesses that are not yet profitable.
Working Capital Loans
Working capital loans are short-term loans that are designed to provide financial bridging to address cash flow needs. The more you understand about how these funds work, the better you will be able to identify the most appropriate option for your specific needs.
Finfind is SA’s leading access to finance solutions for SMEs. This revolutionary online platform links finance seekers with matching lenders, providing easy access to over 200 lenders and over 350 loan options. Finfind is supported by USAID and sponsored by the Department of Small Business Development.
Go to www.finfindeasy.co.za to find the business finance you need. It’s free and easy to use.
Equity Crowdfunding In SA Explained
Here’s a brief snapshot of what it is and how it could benefit your business.
As an entrepreneur, finding the right funding for your specific start-up is hugely important.
With momentum around crowdfunding growing on a global scale, there is talk about equity crowdfunding becoming a viable option in South Africa. This is very good news indeed, as it has the potential to significantly boost economic growth.
Here’s a brief snapshot of what it is and how it could benefit your business.
Equity crowdfunding is a simple concept: Members of the public (the crowd) are offered equity (shares) in a company (generally a start-up) in exchange for funding. The company then uses that funding to kick start the business.
Donations-based crowdfunding and rewards-based crowdfunding have started to gain some traction, with local players such as Thundafund (rewards based) and Backabuddy (donations based) leading the charge; however South Africa is still lagging behind much of the rest of the world, mostly due to the lack of precise legislation around crowdfunding.
The Financial Services Board are yet to decide how they will regulate crowdfunding in South Africa, and so interested parties have been hesitant to engage with crowdfunding, with no-one attempting equity crowdfunding to date.
Another major hurdle is that private companies are not allowed to offer their shares to the public, and the difficulty of registering as a public company is simply too great for a start-up to even bother with. The reason for such stringent requirements though, is to essentially stop fraudulent schemes. The last thing you would want to do is fund an extra round of piña coladas in Mauritius for the opportunistic con-man – the government is therefore right in trying to regulate this area.
There is, however, light at the end of the crowdfunding tunnel – a new start-up Uprise.Africa aims to launch towards the end of this year. Uprise.Africa will be the first of its kind in South Africa in that it will offer the man on the street the ability to invest in a startup of his choosing and receive equity (shares) in exchange for that investment. This is great news for start-ups, as the public will have a vested interest in the success of the business.
Take the example of a microbrewery wanting to launch their brand and get off the ground: Instead of the public (crowd member) receiving a reward in the form of a case of beers for their contribution, they will receive shares.
They will (probably) order a case of beers from the microbrewery and tell their friends to order beer from the microbrewery, as they will get a financial benefit if the microbrewery succeeds. The microbrewery, as a result, receives funding three times over instead of once – which is a powerful tool for growth.
Essentially, the crowd will be a business partner with the start-up, and in so doing, the first customers of the start-up are already waiting in the wings.
The World Bank recently predicted that the market potential in Africa for crowdfunding will be up to $2.5 billion by 2025. Equity crowdfunding in South Africa will hopefully tap into that and unleash significant potential in the startups that are based here.
The hope is that the regulators, when they do eventually regulate crowdfunding, do it in such a way that it is not a death knell for the system that has the potential to significantly boost our economic growth.
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