Mistakes to avoid when raising startup capital

1. Half-baked business plans– There’s nothing worse than going into a money meeting unprepared. If you haven’t put the time and energy into writing a full-blown business plan complete with elements, such as a cogent business description, financial projections and a competitive market analysis, the people with the cash won’t put the time into evaluating your proposal.

2. Focusing too much on the idea and too little on the management– It’s not enough to convince potential backers that you’ve invented the next must-have gadget or can’t-miss clothing store concept. You also need a team that can generate the revenues to repay a bank loan or provide an exit strategy for a VC or angel investor. Many business novices ignore the second part of the equation; that can doom their money quest.

 

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The greatest racehorse in the world still needs a great jockey to a win a race. The same principle applies in business. Showing that you have recruited a top-notch salesperson, a skilled marketer, an accountant with startup experience, other key personnel, and even outside experts like an attorney or business coach who can supply professional guidance is essential to finding a funding source.

3. Having too many lenders or investors– One of the hazards of securing financing from multiple sources is managing too many relationships and expectations. It takes time away from your core business. These not-so-silent partners may have conflicting interests or demands and the consequences can be devastating.

This is particularly true when you raise money from friends and family. One hairdresser I know borrowed money from seven or eight relatives to open her own salon. The business was successful, but there were perpetual battles over how the profits should be distributed. The arguments couldn’t be settled to everyone’s satisfaction, so the salon was forced to close.

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4. Poor cash flow management– Too many new business owners burn through their seed money too quickly and fail to reach cash flow-positive status in a timely manner. Some causal factors, such as late product deliveries and economic downturns may be beyond one’s control, but the executive team is clearly at fault for others, such as unnecessary spending and overly optimistic expense/income forecasts. Financial sponsors don’t take kindly to that sort of mismanagement. And if they turn off the tap, all of your hard work may go down the drain.

TheFounder Magazine

Made Of Founders

TheFounder Magazine is an online business magazine that focuses on starting, running and growing a business in Kenya today

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