"Money makes the world go around, of that we can be sure," sang Alan Cummings in the popular stage play "Cabaret." Certainly, the half-million Americans starting new businesses in 2012 have reason to suspect the truth of those lyrics since raising capital, whether to fund a new
technological marvel or open a franchised restaurant, is one of the most challenging aspects of starting a new business.
Unfortunately, the need for capital never ends. This means that understanding how to find and shake the "money tree" is critical. And before you begin your search, there are a number of crucial questions you must ask yourself - and answer.
Questions to Ask When Raising Business Capital
1. How Much Capital Do I Need?
Although many resources provide information on starting a business with no or little money in the bank, remember that if something sounds too good to be true, it probably is. Don't be misled by the popular literature - having little or no capital is a primary reason why businesses fail.
"Bootstrapping a business when you're not drawing a salary and depleting whatever savings you have is one of the most difficult things to do," says Toby Stuart, professor at the Haas School of Business at the University of California, Berkeley. Even an independent cell phone app developer has to eat until the application has been designed, programmed, and marketed before any revenues begin. If your startup business requires even minimal outlays for offices, equipment, or employees, the amount of capital needed before opening your doors for business is likely to be significant.
Entrepreneurs are often wild-eyed optimists, an often necessary attitude to get their ventures off the ground. But instead of a unique product, record sales, and slow competitors they usually envision, the real world is quite different.
The truth is that no new business succeeds without a detailed and thorough business plan that recognizes where you are today, where you want to be tomorrow, what problems might arise, and how you are going to resolve them. The value of a business plan is that you are forced to think about your potential business critically, challenge your assumptions, and research when you're not sure of your facts. A complete plan identifies and quantifies the capital that is likely to be required to reach break-even and beyond. It is absolutely essential when soliciting investors.