3 Important Factors Business Owners Need to Know When Seeking Other People’s Money
By Karlene Sinclair-Robinson
Too often, start-up business owners have a few preconceived ideas when it comes to using ‘Other People’s Money’ (OPM). These ideas can negatively affect the outcome when they need financing. Getting access to a cash infusion is vital to your business. Your methodology for funding your business must take into consideration many factors.
The business owner who can gain access to capital through sources like family and friends, angel investors, venture capital, bridge loans, or other forms of creative financing will be successful only if they understand the concept of the ‘win-win-win’ factor.
When considering OPM, you must understand the following key points:
- Must have “Skin in the Game”
When you think of “Skin in the Game,” it is easy to conjure up the physical pain from skinning your knee at some sporting event or other. In the financing arena, it is the concept of you financially investing a portion of what is needed to make your business or idea viable. However great your business concept is, if you are not willing to spend your own money to make it a success, then you cannot and should not consider asking any financing source, whether traditional or non-traditional, to lay out the full amount needed.
If you are unwilling or unable to invest money in your business, you will not be moving forward anytime soon. It is crucial that you understand the risk to the investor or lender.
- Must Show Your financials
Why showing your financials is such hard one to comprehend, is beyond me. It is negligent on your part to think you can slide to home base without hitting the ball. You cannot and will not get the money you need for your business survival or growth with sharing this information. It also means that the investor or lender will not know who you are without your financials. Make this a non-issue by being forthright and upfront with your financials and current monetary position.
If you do not follow through on this, it will seem as though you have something to hide. Do you?
- You Must Have Exit Strategies
It is essential that when you build a house, you develop it with a door to go in the front and one out the back. Maybe you will have one on the side. It is the same thought process with your business and using other people’s money to fund it. You must know if you are going to refinance the loan, sell some assets in the future to pay off the debt or sell the company at a profit ratio that is agreeable to all parties, for that matter. Whatever you come up with, make it viable for all parties.
You should consider watching the famous entrepreneurial shows such as ‘SharkTank’ and ‘The Profit’ as a part of your entrepreneurial education. They share valuable insights into business and investing that you can learn from such as business valuation, questions investors ask, and what borrowers should not do when seeking OPM.