The realities of obtaining funding in SA
Let’s be clear on one thing: raising money for your business is likely to be one of the hardest things you’ll ever have to do.
Financing is necessary to help the business owner set up and expand their operations, develop new products, and invest in new staff or production facilities. Many small businesses start out as an idea developed by one or two people who invest their own money, or turn to family and friends for financial help in return for a share in the business. Even if they are successful, there comes a time for all developing SMEs when they need new investment to expand or innovate further. That’s where they often run into problems, because they find it much harder than larger businesses to obtain financing from banks, investors or other credit providers. Putting aside the cost of borrowing money, the complexity of lending arrangements and the inflexibility of banks and major lenders, the fact is that it’s almost impossible to get a business loan. The credit squeeze is not a problem unique to South Africa. Research shows that as few as 3% of applicants worldwide are successful at securing a business loan.
Yet SMEs are the backbone of all economies and a key source of economic growth, dynamism and flexibility in both advanced industrialised countries, and in emerging and developing economies. SMEs constitute the dominant form of business organisation, accounting for over 95% and up to 99% of enterprises depending on the country. They are responsible for between 60% and 70% of job creation in many countries around the world. In addition, they are particularly important for bringing innovative products or techniques to the market. While not every small business turns into a multinational, they all face the same issue in their early days – finding the money to enable them to start and build up the business and test their product or service.
It’s much harder for them to borrow money from banks or to find private investors than for larger companies – and it’s unlikely the scenario is going to change anytime soon. It’s not going to become any easier to obtain the funding needed to start, grow and prosper, and thus contribute to creating jobs and economic growth. Why is it so difficult to obtain funding? Funding institutions are inundated with applications. What makes your business a better bet than thousands of others? Do you have a good credit record? Is your business plan appealing to an investor?
These are all key questions that you will have to answer. Remember, ideas are a dime a dozen – what will set your apart is the amount of preparation and research you put into your business plan, the skills you have available and your passion for the business. Your credit record is vitally important, so keep it clean. One of the most consistent reasons for the failure of an application is non-alignment of the business with the funding institution’s mandate. Don’t waste your time applying for funding for your asparagus farm from an organisation that does not finance agricultural activities. That’s just counterproductive.
What are the options?
Banks are risk averse, so they are unlikely to finance a start-up or very young firm without collateral. They also prefer to avoid businesses that offer the possibilities of high returns but at substantial risk of loss. They are far more likely to provide expansion capital for a business that has a healthy track record. Banks do however provide credit cards, overdrafts and home loan advances which can give you access to finance. If you’re considering private equity or venture capital, you must have a solid business case and a venture that is in line the organisation’s investment strategy. You will be required to demonstrate an ability to service the loan and associated fees and interest without subjecting your cash flow to undue stress.
Government funds are available through a variety of channels, all of which have to deliver on the mandate to advance black economic empowerment, women in business and job creation. How are you able to fulfil on these objectives? Do not make the mistake of expecting to be given cash. You will need to have a comprehensive business plan that is in line with the institution’s criteria. If you are unable to secure finance, you’ll have bootstrap and use your own resources. You may also be able to borrow money from friends and family. Be warned though – this option is only suitable for non-capital intensive businesses.
Never Give Up
Bear in mind that while raising finance is tough, it’s not impossible – provided you do the legwork. Andrew Honey, publisher of Entrepreneur, approached a total of 82 prospective financiers over a period of 11 months before launching the magazine in 2006. His tenacity and resolve certainly paid off. Read on to find out more about how to compile an application for finance that will set you on a pathway to success – and get you the cash!
Alternatives to Obtaining Funding
Many start-ups that are unsuccessful in obtaining capital because they have no track record or collateral end up bootstrapping – adjusting their business model and pulling themselves up by their own bootstraps, the owners launch the venture with as little as several thousand rands. They start small, often operating from home, and are cautious with their expenses, reinvesting money in the business as they go along. In this way, they develop a track record, which gives them a greater chance of securing funding into the future. Another option is to bring in a partner to share the burden of financing the business. As an entrepreneur, you also have access to “alternative capital”: energy and passion, knowledge and skills, time and effort, resilience and tenacity, networks and connection. Use it.
1. Government Funds | IDC
With small businesses playing an increasingly important role in SA’s economy the state has made several supportive funding vehicles available
State funds aim to promote economic growth and industrial development in South Africa, in recognition of the fact that a dynamic private sector creates employment and reduces poverty. There are several sources of funding available from the Industrial Development Corporation (IDC), all of which promote entrepreneurship through the building of competitive industries and enterprises based on sound business principles.
What are the key factors the IDC looks for in a successful plan?
- Proving the viability of the transaction, ability to meet all cash flow commitments (debt repayment, creditors and other cash expenses) and to generate a decent and acceptable return to the shareholders.
- Demonstrating that all aspects relating to a successful business have been considered (including human resources, marketing, finance, technical, production, and corporate governance and compliance issues).
- Demonstrating the ability and experience of managers and key staff to successfully implement and manage the business into the future.
- Basing all intentions and forecasts in the business plan on reasonable assumptions, supported with relevant documentation as far as possible.
- Documenting all information in the business plan. The business plan should be as complete as possible, and a stand-alone document.
What are some of the red flags that cause a plan to be rejected?
- Over-gearing of the business (too much debt resulting in significant doubt being placed on the business’s ability to repay debt and expenses and manage expenses).
- Insufficient experience of key management, which means they are unable to successfully manage and grow the business.
- Inability to justify various assumptions in the business plan, coupled with incomplete analysis of the market and failure to demonstrate how market share will be captured.
- Failure to deliver key outstanding agreements or requirements that are essential to the success of the plan, such as a major contract which does not materialise.
- Failure by owners to provide required security, such as personal suretyships.
- Non-compliance (legal, statutory, tax) for existing companies that wish to expand.
- What process do you follow in evaluating plans in your organisation?
- There are two major processes:
1. Basic Assessment
This phase involves a desktop study of the business plan and constant liaison between the client and the IDC on formulating and tailoring the plan so that all requirements are met. A high-level review of financial viability and other key areas (such as human resources, technical knowledge and compliance) is also conducted at this stage.
2. Due Diligence
Subject to the successful completion of a basic assessment, this phase involves a more in-depth analysis of the business requirements based on the business plan and basic assessment. A team is assigned to conduct a due diligence which involves spending time onsite and engaging key role players such as shareholders, management, builders/professional team, equipment suppliers, existing and new customers and employees.
2. Social Development Funds | Masiszane
If your business is a development initiative that will contribute to SA’s growth, you can apply for social development funding
Social development funders aim to make a meaningful investment in shared growth by supporting people who were previously excluded from participating in the country’s economy.
Old Mutual’s Masisizane fund is investing R400 million in enterprise development, with a focus on women-owned businesses, capacity building and skills development, and financial education. Entrepreneur quizzed Masisizane’s CEO Charmaine Groves about her views on the make or break factors when it comes to applying for funding.
Who succeeds in obtaining funding from your organisation?
We look for entrepreneurs who have:
- Passion for the business demonstrated in the plan and in face-to-face interaction
- Commitment demonstrated by own capital investment into the business
- Capacity to accept constructive advice/criticism, and the ability to analyse input carefully before reacting
- Good credit rating
- Understanding of the consumer and product
- Focus on market diversification, not product diversification
- Product that meets a specific market need
- Product that meets the market’s quality standards and displays a competitive edge
What are the key factors you look for in a successful plan?
- A history of trading (at least three years) and consumer demand for the product
- Up-to-date financials and realistic projections that present a viable business as a going concern (if it’s an existing business)
- Comfortable profit margins, shown by realistic projections, to absorb loan repayments
- Demonstrated regulatory compliance (tax affairs must be in order, for example)
- Must address health and safety issues and protection of the environment
- Must address both the raw material supply and product demand aspects
- Must demonstrate a pragmatic and proven approach to getting the product to market
- The business must be able to secure and/or create jobs – our target is to create, on average, one job for every R100 000 loan
- Must demonstrate the empowerment of black people and women
- Must meet the other Masisizane fund criteria
What are some of the red flags that cause a plan to be rejected?
- The business owners are not actively involved in the business
- The market for the product is clearly saturated or non-existent
- The product quality will not meet the market requirements – this could lead to deferral of funding while the product quality is improved
- The business is not or will not become viable in the medium- to long-term (no demand or no raw material supply)
What process do you follow in evaluating business plans?
- Evaluate against the fund’s criteria
- Evaluate the viability of the business idea, the product, markets, management and technical ability, the legal matters
- Conduct a site visit to gain a better understanding of the business and confirm the facts in the business plan
- Scrutinise the financials, check how realistic projections are, and calculate ratios to determine long-term viability and ability to repay the loan
- Check credit standing
- Motivate financing to credit committee
- Fulfil National Credit Act requirements if approved by the credit committee
- Call +27 11 217 1854
- Visit www.oldmutual.co.za
3. Banks | Nedbank
There are a number of different loan types available from banks, but the criteria are rigorous and you will need some collateral
It is notoriously difficult to secure funding from banks. Before you apply, make sure you have a good credit history and rating, strong financials that are consistent with your credit history, a verifiable income and profit, and sufficient assets to use as collateral.
According to Sibongiseni Ngundze, managing executive of Nedbank Small Business Services, applicants looking for bank funding must demonstrate a good understanding of the business they wish to embark on and importantly, their plan has to be realistic and achievable. “Applicants should use clear and simple language in their applications and business plans,” adds Ngundze. “Included therein should be a brief CV of the entrepreneur or applicant.”
In its evaluation of business plans Ngundze says the bank typically looks at the following criteria:
- A comprehensive breakdown of what needs to be financed
- The entrepreneur’s own contribution
- Evidence that the applicant has conducted extensive homework on the business he wishes to start
- Who and where the target market (clients) is and have they been accurately identified?
- Who the competitors are and the applicant’s key differentiating factors
- Suppliers and/or alternate suppliers. Do they offer reasonable terms?
- Are there substitute products?
- A SWOT analysis
- What are the barriers to entry in the industry, if any? (regulation, high capital requirements, too specialised)
- Is the business subject to seasonal fluctuations?
- How is the business affected by the
- current or future state of the economy?
- Are the premises leased or owned and is there room for expansion?
What process do you follow in evaluating plans in your organisation?
Applications are received from different sources and sales channels in the bank. These are then sent to a team of credit staff within Nedbank Small Business Services who assess the applications and plans according to the criteria outlined on page 64.
Reasons for Rejection
“The bank considers affordability,” says Ngundze. “It also places great emphasis on a comprehensive breakdown of the financial plan and the entrepreneur’s own contribution. Conflicting information between the business plan and supporting data will result in the entrepreneur being called into question. Finally, a poor credit rating does not bode well at all.
- To obtain more information, visit www.nedbank.co.za, click on Small Business Services and then on Management Guide.
- This will assist entrepreneurs with setting up and managing their business. It includes information on the requirements of a business plan.
4. Venture Capital | HBD Capital
VC companies typically favour early stage companies with high growth potential.
An equity investment which is subject to more than a normal degree of risk, venture capital is usually associated with a new business or venture and particularly with new technology projects.
According to venture capital expert Keet van Zyl of HBD Venture Capital, organisations such as his fund less than 1% of proposals received. HBD is a niche venture capital company and it has to be judicious with resources.
The screening process
- Only 25% of proposals received by HBD Venture Capital fit its funding mandate
- That number shrinks to 10% post the initial meeting with the entrepreneurs
- Half of those entrepreneurs, a mere 5%, pass the test and make it to the next round
- Only 1% will make it beyond the due diligence and legal negotiations to be successful in their acquisition of finance
How do venture capital companies typically define their investment mandates?
It is critical to learn as much as possible about the VC’s investment mandate and to ensure that the concept and business plan fit within its scope. Here is a list of common criteria for VC investment mandates:
- Most VC companies shy away from start-ups in favour of companies that are able to demonstrate revenue for anything from six months to two years
- Qualities and proven ability of the management team
- Equity-based funding is a likely requirement
- VC companies typically favour specific bands of financing requirements –
- R10 million to R50 million, or R100 million
- Sufficient barriers to entry, cutting down many competitors and ensuring a largely uncontested market space
- Potential for fast-paced, high growth
- Many VC companies will favour certain industries and exclude others
What are the key factors venture capital organisations typically find in a successful proposal?
- Match with the VC company’s investment mandate
- Viable current business model
- Aggressive growth strategy
- International expansion opportunities
- Growth in their industry
- Passionate entrepreneurs/strong management teams
- Can this entrepreneur be an industry leader?
- Can the business model create a “network effect”?
- Unique differentiating products/concepts
- Barriers to entry
What are some of the red flags that cause a plan to be rejected?
- Most venture capital companies make financing decisions that are based on the investment mandate – a mismatch with the mandate will result in rejection
- Slow revenue and profitability growth projections
- Lack of uniqueness
- Lack of scalability
- Lack of understanding of the industry in which the entrepreneur operates
- Inadequate strategic plan to be able to implement and grow a great business concept
- Unreasonable expectations of the valuation of the business concept
- False claims being made or misrepresentations
- Misalignment between the business plan and the entrepreneur’s oral ‘pitch’
What is the typical process for evaluating proposals for VC?
Not unlike other venture capital investors, the HBD process is designed to provide crucial decision points at each step of the investigation to ensure that the business owner experiences no unwarranted delays. Van Zyl outlines the procedure for evaluating business proposals received by the organisation:
- Initial Screening: The information provided in your business plan is evaluated to determine if it is in line with the funding mandate and whether it is likely to yield venture capital expected returns.
- Assessment: In this initial meeting the business owners will present their business case with the objective of determining possible synergies and the way forward.
- Term Sheet: A short investigation is conducted and a report is presented to the investment committee. If the decision is to proceed with due diligence, HBD will negotiate a term sheet and exclusivity agreement with the business owners.
- Due Diligence: Due diligence is carried out by a core team and outside expert consultants. A typical due diligence process can take between one and three months as it requires a very detailed review of the financial, human capital, legal, market and product components of the business.
- Deal Execution: If the investment committee approves the transaction, the legal documents are negotiated and implemented and the funding is disbursed.
- Call +27 21 970 1056
- Visit www.hbd.com
Attracting Angel Investors
Look to your networks and the people you know to find angels
Professionals. These include doctors, dentists, lawyers, accountants and so on. You know these people, so an appointment should be easy to arrange. Professionals usually have discretionary income available to invest in outside projects.
Business associates. These are people you come in contact with during the normal course of your business day. They can be divided into four subgroups:
Suppliers. The owners of companies who supply your inventory and other needs have a vital interest in your company’s success and make excellent angels. A supplier’s investment may not come in the form of cash but in the form of better payment terms or cheaper prices.Customers. These are especially good contacts if they use your product or service to make or sell their own goods.
5. Private Equity | Business Partners
A private equity investor will become a partner or direct owner of your business
Private equity capital is provided to companies for the development of new products or technologies, strengthening of the capital base or for acquisitions
Entrepreneur quizzed Business Partners’ Nic van der Westhuizen, area manager of the North Rand, on his views on the make or break factors when it comes to using your business plan as a tool to get funding.
What is the average ratio of plan submitted vs plan approved?
It varies between 17% and 20%. It depends on the number of business plans for start-up businesses; the approval rate here is normally smaller.
What are the characteristics of a successful plan?
It’s well thought through and realistic. This does not have to be an academically correct document. The facts in the business plan should be well checked. Assumptions should be well motivated. The entrepreneurs should preferably have some experience in the industry, or at least have the ability to be trained. The business plan is really a reflection of the abilities of the entrepreneur. They should also preferably have some own contribution towards the business.
What are the key factors Business Partners looks for?
How realistic is the business plan? We look at the risk involved in the business. This is determined by the viability of the business, the gearing, and the entrepreneur. We require a detailed description of the existing and/or proposed market and how the entrepreneur proposes to enter the market.
What can cause a business plan to be rejected?
Some of the major reasons for rejection are affordability (due to the high finance amount required the business cannot afford the repayment), viability of the business (especially in cases of new businesses), a poor credit history, lack of experience where it is required in specialised industries, and over optimism regarding projections without acceptable motivations.
What process do you follow to evaluate business plans?
All business plans are evaluated by portfolio managers and area managers. These are all highly experienced people. We do a desktop analysis, discuss the business plan with the applicant and visit his business, if applicable, before we make a decision. If we come to the conclusion that there might be a deal in it we do a detailed due diligence on all the relative facts in the business plan.
What is your best advice for writing a business plan to get funding?
Always write a business plan for yourself and not for your bank or financier. Regard a business plan as a roadmap for your business. Be honest and realistic in the document. Never fool yourself. Write the business plan yourself. The business plan that we want from the entrepreneur must be a realistic, workable document. It must be a “living” document that is updated on a continuous basis.
- Call +27 11 713 6600
- Visit www.businesspartners.co.za
Want Funding? Finfindeasy.co.za Founder Says You Must Learn To Speak The Language
Darlene Menzies, founder of Finfindeasy.co.za and the successful recipient of multiple rounds of funding unpacks what she wished she knew the first time she pitched her business to investors.
I clearly remember my first large pitching opportunity over six years ago. It was an evening cocktail event organised by one of the legendary pioneers of South Africa’s venture capital (VC) community, Brett Commaille. It took place on or near the top floor of the Reserve Bank building in Cape Town. One of the reasons it’s so vividly etched in my memory is that I had to climb more than 30 flights of stairs to get to it because as a chronic claustrophobe I don’t do lifts.
After reaching the right floor and catching my breath I stepped into a room full of 30 or so high net worth individuals — my introduction into the new world of Angel and Venture Capital investors.
Looking back, I wasn’t as nervous as you might expect, partially, I thought, because I had prepared well and I whole-heartedly believed in the product I was pitching. But in hindsight, I realise it was mostly because I was wonderfully naïve. There are some benefits to being a greenhorn.
The pitch itself went well, I had been briefed to keep it simple and short. I described the solution we had developed, the problem it was addressing and what the size of the potential market was. I spoke briefly about the competitors and what our differentiators were, what the business model was and shared our go-to-market plan.
I covered the size and pedigree of our team, as well as my skills and experience as the founder (aka the jockey) and ended with details on how much money we were looking for and what we would use it for. I was relieved when it was over and felt confident about my delivery.
A bunch of hands shot up, which was positive. I felt encouraged; the hard part was behind me. Or so I thought. My nightmare began when I took the first question. “Great pitch, I love what you guys are doing. Please can you tell me a bit more about the traction you are getting, what your current burn rate is and how much runway you have.” My heart sank and I felt my cheeks start getting hot.
I didn’t have the foggiest idea what he was talking about. I could tell he wasn’t intentionally trying to embarrass me, but nonetheless his VC jargon made his questions sound like enquiries about cars and airplanes or something mechanical rather than anything I was working on. I put on a brave face and asked him if he would mind explaining to me what it was he wanted to know so that I could try and answer him. That was the start of a steep learning curve as I began to navigate the world of early stage capital raising.
Six years on, the South African start-up and venture capital community has matured and grown dramatically and there are many more entrepreneur events, training opportunities, start-up competitions and pitching coaching sessions, which has resulted in some of the lingo becoming more commonplace — even so, raising venture capital still largely remains a very foreign and intimidating world for novice entrants. Back then I wished I’d had access to a practical VC-made-easy glossary and step-by-step manual as a beginner’s guide. I’ve been threatening to write one ever since.
Terms you should know when looking for funding
After surviving my harrowing Q&A baptism of fire, I starting working my way through the world of term sheets and deal negotiating and came across many more acronyms and VC-specific terminology that I had to learn to interpret and understand. Below are just a few of the terms I would love to have known about and understood before my climb up those Reserve Bank building steps. There are many others.
Deck (or pitch deck) refers to the short presentation you will give to the investors. Guy Kawasaki, a well-known American investor, recommends his 10/20/30 rule as an easy guide for your deck. He says make sure your presentation consists of ten slides, take no more than twenty minutes to get through them and use a font that is no smaller than 30 points per slide.
See guykawasaki.com/the_102030_rule/ MVP (minimal viable product). This is a product developed with the minimum features to ensure it is sufficient to satisfy early adopters. The final, complete set of features is only designed and developed after considering feedback from these initial users.
Traction refers to the number of people who have already started using your product or service and provides a means of proof to the investor that people want/need what you are selling. Traction is best measured by the number of paying customers acquired over a defined period.
If you are running a business that sells products/services via subscription, then potential investors will want to know your churn rate. This refers to the number of customers who bought your product and never continued using it i.e. those you lost after acquiring them. This figure impacts your growth forecasts.
Tip: Make sure that you have built the churn rate into your forecasts so that your numbers are solid.
Burn rate refers to the amount of money the business requires monthly to cover operating expenses. You can definitely expect to be asked what your current and anticipated burn rate looks like should you receive growth funding.
Runway refers to the number of months that the business has sufficient cash to continue to operate before it runs out i.e. if you have R200 000 in the bank and your burn rate is R95 000 and you are not expecting any immediate income from sales then you have two months runway.
What investors want to know is how long the business can keep going until it has to close. Once again expect to be asked your current runway and your future runway in terms of the amount of money it will take to achieve the desired numbers.
This is a common term used to describe the kind of growth curve in a start-up that an investor is keen to see. It refers to the exponential growth of things like users or page views, but mostly to revenue, which is projected to occur once a particular inflection point is reached. Early stage investors like to invest before this point is reached and then to sell their shares once the hockey stick growth is achieved.
Related: How To Raise Working Capital Finance
Venture capitalists only plan to invest in your business for a limited time period, usually between five and seven years, before expecting to receive their returns. An exit strategy is a planned approach to them leaving in a way that will maximise their benefit and minimise damage. A typical exit strategy is a plan to sell the company once it has achieved its anticipated growth targets. In this case they may want to know who you foresee would be prepared to buy your company.
The term sheet is the document presented to the start-up by the venture capital investor once they have decided they would like to invest. It outlines the terms by which they are prepared to make the financial investment in your company. You are entitled to negotiate the terms with the investor before reaching agreement. The signed term sheet is not legally binding, unless stated, but rather it contains the final terms of the investment that will be used to draw up the legal documents for the deal. Always seek legal advice before signing a term sheet.
Do your research
My encouragement to entrepreneurs who are looking to raise venture capital is to have a coffee or two with a few seasoned founders who have already done deals in order to get firsthand insights about what to expect when you engage with VCs — from the time you land the pitching opportunity to when you sign a deal and get the money and everything in between.
The Investor Sourcing Guide
How to attract and obtain investors to your established, high-growth business.
As an established, high-growth company, you may find that you need to source capital, identify a mentor, or work closely with other affiliates to prosper. In this case, partnering with an investment holding company can be a valuable growth tool.
So, what should you do if you want to be acquired by a holding company?
1. Research everything
If you’re considering a long-term investment partnership, make sure you conduct substantial prior research. There may be many potential investment partners out there, but each has specific venture and industry directives. Get to grips with these.
Related: Is Venture Capital Right For You?
2. Be candid with yourself
The amount of capital that you need will affect which holding company you choose. In particular, you’ll need to understand what your risk profile looks like relative to the returns you expect to provide. This will also help you to source, entice, and keep the attention of the most appropriate partner.
3. Identify your must-haves
Any investment partner you choose is likely to be able to provide you with funding, a broader network, and economies of scale. Beyond these, however, you’ll need to decide on your most important benefits (must-haves), so you can target the companies that can offer you the best fit.
4. Spell out your funding plan
You’ll need to be very clear on how you plan to spend the funding you get from your investor. This plan should stipulate, in particular, how you plan to grow.
5. Scrutinise each investor
Make sure to analyse your potential investors’ investment history, so you can get a clear idea of where your interests are aligned. Look specifically at things like:
- Where investors’ get their funding
- What their investment track record looks like
- What their investment directives are
- Their appetite for risk
- The returns they usually aim for
The crux of the matter
Research is essential, no matter which holding company you hope to be acquired by. This will help you to find, attract and retain an investor who gives you the funding you need, and lends you the support to be innovative, productive, and profitable.
6 Great Tips For A Successful Shark Tank Pitch
Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes.
Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes. Entrepreneurs will often need to promote their businesses to prospective customers, lenders, investors, employees and even suppliers.
All stakeholders would like to know with what and whom they are dealing. They will need to assess risk and will try and evaluate the business against others who are competing for those same funds.
1Know Your Product
You should be able to describe your business within 60 seconds, in a confident and positive manner. Let the stakeholder know what particular problem your business solves which makes it viable and attractive.
Your brand and how you intend to develop it is important in determining whether they will invest or lend you money. Share critical information with them such as large customers, patents and trademarks and details of forward orders.
If you are looking for funding or investment, make sure you have the relevant paperwork to back up what you are saying.
You must have your numbers at your fingertips. A true and successful entrepreneur will know his numbers instinctively and be able to recollect and present them convincingly. Stakeholders want to know your turnover (sales) over the last couple of years, your gross profit and net profit.
Investors want to know what they are investing in and whether there is strong potential for their money to grow. Lenders will want to assess their risk — how are you going to repay the money? Moreover, you as the business owner, need to be sure that you will be able to make the required repayments.
You must know what your margin is, as this will largely determine your viability as a business. Margin or gross profit is the difference between the selling price of the goods and their cost and is usually expressed as a percentage.
3Know What You’re Asking For
Be clear as to the size of the investment you want to give away and how that determines the ‘valuation’ of the business. Therefore, if you wish to raise R200 000 for 10% of the business, that means you value the business at R2m — be sure you can back that up or you will get taken apart.
4Have a Business Plan
The best way to fully understand your business is by way of having a detailed business plan, which has been prepared whilst working through every facet of your business, from the original idea to the finished product.
As the business owner, you need to live this business plan and be able to use it as your daily guide to success. Develop it, change it where circumstances require it, but most importantly know it and understand it.
In this way, you will be able to deal with most of their questions, be they about marketing, research, international expansion etc. It is also a good idea to know your competition and what they are up to.
In most interactions, you the entrepreneur, are selling yourself. Whether it is an investor, lender, customer or prospective employee, it is their impression of you and your capabilities which ultimately determine whether they want to work with you.
Be confident, defend your position where required, as you will need to parry some blows but do not behave arrogantly.
6Learn From Your Mistakes
Many entrepreneurs who have presented to the Shark’s Den and not been able to garner investment have turned their business into great successes. You need to be able to learn from the experience, and if rejected, bounce back even stronger.
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