Unlike popular credibility, business plans do not create corporate finance. There are many financing options that require a business plan, but no one invests in a business plan. Investors need a business plan as a document that communicates ideas and information, but they invest in a company, in a product and in people.
Small businesses finance myths.
Venture capital is a growing opportunity for business finance. In fact, venture capital financing is very rare. I explain later, but assume that only a few high-growth plans with high-capacity management teams are betting opportunities. Bank loans are the most likely option for financing a new company. In fact, the banks do not finance business startups. I have more on the latter too. The banks arent would invest depositors money in new companies.
Business plans sell investors. In fact, they can not well-written and convincing business plans and pitch sell investors to your business page, but you will also convince the investors you are worth investing in. In terms of investment, its as much about whether youre the right person to run your business as it is about the profitability of your business idea. Im not saying you should not have a business plan. You should. Your business plan is an important part of the funding puzzle, explaining exactly how much money you need, and where it will go and how long it takes you to earn it back. Everyone you talk to will expect to see your business plan. But depending on the type of business you have and what your market opportunities are, you should tailor your funding search and your approach. Do not spend your time looking for the wrong type of financing.
Where to look for money.
The process of looking for money must match the companys needs. Where you are looking for money, and how you are looking for money depends on your business and what kind of money you need. There is a huge difference, for example, between a high-growth internet-related company looking for other venture funding and a local store that wants to finance a second place.
In the following sections of this article, I will talk more about different types of investments and lending to help you get your business financed.
The activities of venture capital are often misunderstood. Many newly created companies reflect venture capital companies not to invest in new companies or risky companies. People talk about venture capitalists like sharks - because of their probably roaring business practices or sheep - because they probably think of a flock that everyone wants the same types of offers.
Venture capital should not be considered a source of funding for anything but a few exceptional start-ups. Venture Capital can not afford to invest in startups, unless there is a rare combination of product opportunities, market opportunities and proven management. A venture capital investment must have a reasonable chance of producing a tenfold increase in business value within three years. It must focus on newer products and markets that can reasonably lead to increased sales of large multiples over a short period of time. It has to work with proven executives who have handled successful startup companies earlier.
If you are a potential venture capital investment, you probably know it already. You have management members who have already been involved. You can convince yourself and a space full of intelligent people that your business can grow ten times over three years. If you have to ask about your new business is a potential venture capital opportunity, it probably is not. People in new growth industries, multimedia communications, biotechnology or the high technology of high technology products generally know about venture capital and venture capital opportunities.
Sorting of venture capital. Angels and others.
Venture capital is not the only source of investment for start-ups or small businesses. Many companies are financed by smaller investors in what is called private placement. For example, in some areas there are groups of potential investors who sometimes meet to hear suggestions. There are also wealthy individuals who sometimes invest in new businesses. In business startups, groups of investors are often referred to as doctors and dentists, and individual investors are often called angels. Many entrepreneurs are turning to friends and family for investment.