Step 1: Identify the Need
Determine your funding needs by estimating the related costs for starting up and continuing to operate. Estimate revenue as well. Do a profit and loss statement and monthly cash-flow analysis for the first year. With this information, project how your next quarter and year will look. When will you break even? This analysis will highlight the period for which you’ll need outside financing.
After you’ve done your cash flow analysis, you’ll know when you will break even and how much money you’ll need to sustain the company until then.
Step 2: Know Your Options
Even if you don’t have any collateral, poor or no credit score, and no cash flow, there are options. Financing differs dramatically based on the size of your industry, the potential of your business idea and your abilities. Your networks will ultimately help you determine what financing options you have available.
You have many options for financing your company, including funding it from your savings. If you’re a small business needing $5,000, an organisation that grants microloans (like Kiva, for example) is a great choice. If you’re a high-growth company needing hundreds of thousands of dollars, angel investors may be the solution. If you want to pre-invoice your product, rewards-based crowdfunding could be your ticket.
Step 3: Deconstruct Your Needs
Be dogged in evaluating what you need and why. The reasons you need the money will impact what type of financing is right for your company.
Your options will vary by many factors, including:
- The stage of your company — Are you a startup or have you been around for a bit?
- The size of the market you are targeting — Is it a billion-dollar-plus industry or is it much smaller?
- The potential of your offering — Does the product address a need in a big or a small market?
- How fast you want to grow — Do you want to scale your business really quickly or grow gradually?
- How much money you need — How much will be needed to scale? When will you reach profitability?
- What you want to use the money for — Do you need money to start your business, provide working capital, grow, etc.?
If you’re a fashion designer, for example, you might need money to hire others to help, increase your marketing spend, improve the technology you use or move into a larger space. Any funding source will want to know the answers to these questions before they buy in.
Step 4: Do Some Serious Homework
Here’s where the rubber meets the road. Financing is complex, so you’ll need both patience and persistence as you evaluate and narrow your options. Eliminate what’s irrelevant and stick to what is the most natural fit for your business goals. We’ll help with some of this homework in the latter half of this e-book.
Using the same example as above, if you’re a fledgling fashionista trying to bring your designs to market, it would be appropriate to enter a competition. With a little research, you might find competitions created by fashion mavens (Tory Burch or Eileen Fisher) or competitions specific to designers (GirlBoss Foundation). It wouldn’t be wise to apply for a government grant since after researching you’ll realise the government never awards grants to businesses like yours. Do your homework to avoid wasting time pursuing irrelevant sources of funding.
Step 5: Prepare Like Your Business Depends on It
… Because it does. The biggest mistake startups make is not being ready with the essential tools required to finance a successful launch. These include, but are not limited to:
- Marketing — No matter how big or small, every business needs an elevator pitch. More aggressive financing needs will likely demand a full-blown marketing plan.
- Financials — Expect to provide profit and loss, cash-flow and balance sheet statements, including the assumptions on which you based your projections (most likely three years).
- Business fundamentals — All funders, whether debt or equity, may want a business plan (check with the funder for their preferences). Equity investors will also want an executive summary and investor deck.
To enter your fashion venture into a competition, you’ll need to provide some information, but much of it can be taken from the marketing, financial and business fundamental materials you created for other pitching opportunities (and from step 3 when you took the time to answer all those questions).
Here is a summary of the 10 building blocks for the perfect investor deck recommended by Evan Baehr and Evan Loomis in their book “Get Backed: Craft Your Story, Build the Perfect Pitch Deck, and Launch the Venture of Your Dreams”.