Every business at some point needs money, whether it is in a startup mode, financing growth, or just overcoming a rough patch.
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The New Year is upon us; optimism abounds and there is usually an overriding belief that it will be a strong growth year. And as many of you know, growth can be a stern taskmaster. Growth requires more of everything, including time, resources, energy and especially money.
Every business at some point needs money, whether it is in a startup mode, financing growth, or just overcoming a rough patch. For startups, the expectation is that the financing is self-funded. Jobs and Wozniak started Apple in a garage; Gates and Allen sold computers out of their house.
The transition from self-funding to using other people's money is usually a function of proven capability matched with opportunity. It's at this juncture that many small businesses either fail or just stall out. Lack of capital is frequently cited as the cause of a business failure in this early stage.
If truth be told, it is not the lack of capital that caused the business failure. Rather, it is usually a poorly advised venture or lack of owner skills that precipitates failure. The inability to properly capitalize the business is merely a symptom.
To avoid the symptom of poor capitalization, know who you are and where you are going. Successful business owners have an understanding of financial issues and financial planning. Foundational to this is the business plan and cash flow projections. These two tools reflect historical performance (if it's an existing business), and future projections based on market knowledge.
Successful business owners know their markets and their customers. There is no guessing as to why customers buy; there is intimate knowledge of customers supported by strong relationships with those customers. Relationships and knowledge translate into increasing revenues and even more customers.
Whether starting out or whether the capital is needed to finance growth, be clear on the requirements. Know what the money is intended for, and more importantly, how the money will make the business more successful. Once you know this, you then can determine how much money you need.
So as you look out over the next 11 months, be clear on your goals and expectations. Clarity of thinking and planning is a very enticing characteristic for an investor. Every investor knows that their capital is a tool. The investor wants to use the tool wisely.
Investors, banks, angels or other sources of capital are not looking to fund just the entrepreneur. They are looking for two things: To fund a viable venture that is poised for growth and mobilized and driven by a capable entrepreneur.
The hope of the investor is that by funding a viable and growing venture, their capital can be used to produce premium returns on the investment. The entrepreneur's job is to prove the case that the premium returns are not only possible, but probable.
Cash is king. Proper capitalization can drive growth. The entrepreneur's task is to prove that the growth of the business is attainable, sustainable and profitable. If that can be done, then there are sources of capital that will help that business get to the next level and make the next year very profitable and successful.
Ken Cook is the co-founder of How to Who and co-author of How to WHO: Selling Personified, a book and program on building business through relationships. Learn more at www.howtowho.com.
