Do you have a business project and are you looking for financing from a bank or an investor? You have already exhausted other less orthodox and informal avenues (savings, family, and friends). Now it's time to get a little more serious because in the relationship with a bank or investor there are no longer affections involved.
The first argument to convince comes from good preparation. And this one has a name: business plan. The business plan is your roadmap. The clearer, more precise, complete, and realistic it is, the more convincing.
Presenting yourself to a bank or an investor with vagueness and with a Gruyère cheese (by the holes) under your arm makes you less serious. It is therefore advisable not to waste bullets by shooting yourself in the foot.
1) The business plan
The roadmap must be very clear in three aspects:
What are you going to sell?
Whom are you going to sell it to?
How are you going to sell it?
From these three points others no less important are derived:
A market study where potential customers and competitors are examined. At this point it is important to highlight the differential factor: if you are going to sell a product or service that is already saturated in the market, hardly someone is going to buy it and even less finance it.
A commercial strategy that includes how you are going to sell your product, the location of your business, your communication and marketing plan, your pricing and distribution strategy.
A financial and economic analysis that includes an investment and financing plan.
A business plan must be realistic, so a SWOT analysis that clearly exposes the weaknesses and strengths of your business loan leads, as well as the threats and opportunities of your business will make it even more convincing.
Lastly, don't neglect the formal aspects. And with formal aspects, we do not mean graphics and other flourishes to beautify your presentation. Nor are we referring to the forms (the manners) of behavior (which too): the formal aspects have to do with a coherent structure that surrounds the content of your business plan.
2) How to convince a bank or an investor of your business
Once your business plan has been prepared, it is important to know how to communicate it in the shortest and most orderly way possible. It is clear that if your project is not good, you are not going to convince anyone no matter how good rhetorical skills you have. But poor communication can derail a flawless plan.
To communicate something well, in addition to having something to communicate (your business plan), you also have to know your audience. And that means knowing what their interests, needs, and expectations are. It is not the same to present your business project to a bank than to an investor. Let's see why.
2.1) How to convince a bank of your business
When a bank is encouraged to finance a business project, its main concern is that it is viable. That is, you are able to repay the loan and its interest.That is why in your argument you focus on three aspects:
That your company is able to create a positive cash flow. That is, it creates liquidity (cash). Remember that the bank wants to collect the loan within the stipulated terms and that your business generates liquidity will reassure them.
Consistent financing. If your business needs long-term investments, ask for a long-term loan. The same logic is imposed if you need short-term financing.
Guarantee. Banks want to get back what they have lent you and that is why they will ask for guarantees. You can go to a Reciprocal Guarantee Society, a non-profit financial entity whose main purpose is to ensure access to credit for the self-employed and SMEs. In Spain, they are mainly distributed by autonomous communities.
2.2) How to convince an investor of your business
First of all, warn you that an investor should be the last financing option for your business. Before, it would be advisable to exhaust other avenues, such as requesting a bank loan. Now, since you've arrived here, let's move on.The logic of an investor - be it a business angel or a venture capital fund - is different from that of a bank. If the bank is concerned that your business is viable, the investor is interested in making it scalable. That is, that your income grows exponentially in relation to your expenses (which grow linearly). In other words, your business has the potential to explode.
Investors enter the capital of your company on a temporary basis with the aim of later selling their shares for a huge price (capital gain). In other words, your investment is designed to get you - usually in the short term - your return with large returns.
If you want to convince him, you must take into account the following aspects:
The investor is not a bank. Do not go to him asking for "financing" because, if he is responsive, he will send you to a bank. Take care of your vocabulary. Investors seek to invest, not finance.
That your business creates value. If your business is satisfied with being viable (which is what a banker is looking for) it will not interest any investor. Creating value does not mean simply creating profits. Even if your business does not create immediate benefits, your investors will continue betting if they see that it generates a value that will ensure greater and lasting benefits.
A classic example: the first pizzeria in the world with a home delivery service was the North American Dominoes. By offering such a service, you created value that would bring you more benefits. When the competition offered the same service, Domino's responded by assuring that the home delivery time would be less than 30 minutes. That is creating value.
Define your relationship with the investor. Make it clear what type of investment (long-term? Short-term?) You are looking for as well as its relationship with the control and management of the company. Do not forget, by the way, to be humble: your investor has more experience than you and their participation can help improve your business.
Your company has a price. If everything works well, one day your investor will want to recoup the investment and something else butterfly. Clarify what percentage of your capital you sell and at what price.
Sell yourself well. That is, show him that you are the ideal person to carry out that project (and, therefore, to receive that investment). Show confidence and conviction and turn your weaknesses into strengths. And whoever talks about you talks about your team, because you will need to be surrounded by good professionals. I suppose you've heard that "you invest in people, not ideas."
Invest your savings. You will gain credibility with your investments if you do so. Why? Because you yourself have given credibility to your business by betting something as valuable as your savings.
To conclude, remind you that there are no magic formulas to convince a bank or an investor; especially the latter. On the internet, you can find advice from various startups and entrepreneurship gurus, such as these invaluable recommendations from Create my business. They are very useful to start with.
Don't forget that you learn from experience. If the first time it doesn't work, keep trying. There may be weaknesses in your business plan, in the way you communicate it, or even that it is your own business idea that still needs to mature. Well then: don't be discouraged and keep improving it.
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