Has your dream always been to own a business? Perhaps you have an invention you can’t wait to get into the hands of the masses. Whatever the reason, if you’re seeking small-business investors, you’re competing against thousands of others trying to secure financing.
How can you stand out from the crowd and show you have a solid plan that leads to success? After all, no one wants to invest in something without a well-thought-out series of steps. In addition, investors want at least a chance of getting their money back and earning a little extra.
How Do You Impress a Private Investor?
The United States Census Bureau tracks how many applications come through for businesses needing tax IDs. Keep in mind that not all new businesses will utilize an Employer Identification Number (EIN). Hence, the numbers are likely much higher when you include solopreneurs using their Social Security numbers and filing as sole proprietors on their personal taxes.The Census Bureau listed 525,741 applications in September 2022. If you want to attract the attention of an angel investor or others, you must refine your approach.
Have you ever watched the television series “Shark Tank?” Investors serve as hosts and hear pitches from inventors and small-business startups. You can learn a lot about the information an investor needs to decide. However, a few episodes into the show, one thing becomes clear: If you don’t know your business numbers and plan, don’t bother talking to an investor.
Here are some of our best tips to help you stand out in a crowded field of applicants.
1. Know Your Goals
What are your goals for your small business? The last thing you want to do is stand in front of one or more investors without a clear vision for where you’ll be in a year, five years, or ten years. Write out your goals.It’s a good idea to embrace the S.M.A.R.T. goals method. S.M.A.R.T. is an acronym that stands for:
- Specific: Narrow the focus of your goal.
- Measurable: How will you know you met the goal? For example, you might say you’ll increase the customer base by 10 percent in the first quarter.
- Achievable: Make sure you can accomplish the goal. It’s okay to make it challenging. Don’t make it impossible.
- Relevant: Choose a goal investors will care about. They want to know how you’ll reach customers or achieve more sales.
- Time-based: Set a time limit for your goal. “By the end of the first quarter, I’ll have gained 10 percent more customers than I have now.”
2. Improve Your Credit Score
What is your long-term credit rating, and how might it impact how investors look at your business? Even though you might separate your company from your personal holdings via an LLC or corporate structure, as an entrepreneur, you’re still the one in charge of managing finances. Therefore, when looking to secure funding, it’s essential to keep your personal and business credit ratings in check.If your personal credit score is low, investors may hesitate to trust you with a lump sum for your business. You’ll run into similar issues if you try to get a small-business loan. Spend time improving your personal credit situation so investors can see you know how to manage money:
- Make a list of payments and when they are due.
- Set up automatic payments so you’re never late again.
- Pay off the lowest-balance debt first and then throw that payment at the next lowest, and so on. Some people advise paying the highest-interest debt first. Both ways work—it just depends on your personal financial preference.
- Don’t take out any other lines of credit. Investors may worry you have too many revolving lines and will default on something.
- Call credit card companies and work with them on how to improve your credit score.
- Remove any errors from the credit reporting agencies.
3. Start Small and Scale
Investors don’t necessarily want a company that throws a ton of money at advertising and tries to grow rapidly. Such rapid growth can lead to cash flow problems and growing pains. You’re better off starting small and scaling up as you go.Put yourself in the investor’s shoes. Would you rather loan someone a few thousand dollars to get past a cash flow hump and move on to success, or would you like to throw tens of thousands at a business and just hope it pays off?
If you keep a laser focus, your business will increase over time. But don’t try to force it to grow up too quickly.
4. Remove Ownership
Don’t be so in love with your business model or product that you become inflexible. If something isn’t working, be open to advice from your investors. Many of them find small-business owners and build them up, mentoring them along the way.Remove your ownership of certain parts of your business. While you should have values and stick to them, will it really kill you to get rid of the first product you sold if no one is buying it, or it breaks easily and creates return scenarios?
Take a step back and look at things neutrally. If an investor gives you some advice you don’t like, ask them to let you mull it over for a day or two and get back to them. Often, once the initial hurt emotions at the insult to your “baby” die down, you’ll see some value in what they’re offering and can figure out adjustments that will keep you and your investors happy.
5. Embrace Technology
Most small-business owners apply analytics to their use of technology in this post-pandemic world. One survey showed that 55 percent of small-business owners use data to improve efficiency and results. Use programs such as:- Customer relationship management
- Inventory tracking
- Marketing analytics
- Automation of processes
6. Ask Those You Know
Still, having trouble finding small-business investors? Reach out to the people in your inner circle. Would some of your family and friends be willing to invest in your company? Perhaps you could offer $100 vouchers for $75 with the understanding the voucher pays off once your business becomes more profitable.Spell out the terms clearly so your family and friends don’t feel you’re just trying to get a handout from them. Also, it’s important to consider that you may not make as much as you predict. Make sure they understand you may be able to pay off the vouchers quickly, or it may take several years.
They should understand that if your business goes under, they may not get their $75 back at all, but you do not intend to allow that to happen. It’s a risk, though, so prepare them for it. You might be surprised how many want to invest in your great idea.
7. Choose Investors Wisely
Be careful who you take money from and what the agreement entails. You may lose your entire business to debt if you have to start paying the money back at a specific date rather than a revenue trigger. Investors tend to come up with a few potential scenarios:- Pay them back starting on “X” date.
- Then, pay them a percentage of all sales going forward.
- Third, repay them once you hit a certain revenue threshold until they make a return on their investment plus a bit extra.
- Finally, give them a percentage of the business and thus all future profits.
8. Create Amazing Content
HubSpot’s State of Marketing 2023 report estimates about 90 percent of marketers plans to use the same or more content marketing going forward. Here are some of the types of content that can drive traffic and show potential investors you understand your audience:- Short-form videos
- Articles on your site or blog
- Social media posts
- Infographics
- Longer “explainer” videos
- Testimonials
- Beautiful images showcasing your products
Be Yourself
Although you want to stand out and show you are a professional in your industry, you should never turn your back on who you are. Your story—the reason you started your business—is a deciding factor for many small-business investors.Share why you care about the product you’re selling. What is the pain point your customers face that you want to solve for them? Why do you care so much? What about your background gives you the passion and drive to make your company as successful as the others out there? Being yourself and showing your backstory is one of the most powerful things you can do to stand out in a crowded application pool.
By Devin Partida
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
