by Pavlo Phitidis
Starting your business is hard, but growing it can be far more difficult. One of the most important elements attached to the process of growing your business lies within negotiating deals. Television programmes like Shark Tank and Dragon’s Den have put the art of making deals into the limelight, as investors ask for equity from entrepreneurs, in exchange for injecting their skills and financial resources into a fledgling business. But how can you fund the growth of your business without giving away too much equity? Here’s how to get funding for your business or project.
How do "deal make" your funding to build the business you want
There is more money available than there are ideas
Money chases good opportunities, so it’s important that you ensure your business creates those opportunities. Look at your business in the same way an investor would, as an objective perspective will help you to create an attractive investment opportunity. A good business opportunity for an investor is: where a good return can be made and maximised, with minimised risk.
Find Your Customer First
Entrepreneurs often make the mistake of trying to attract funding, before they attract their first customer. If you believe that the service or product your business provides has true market potential, find the customer first. If you can’t find a customer, you’re in the wrong business.
Fund Using Suppliers and Customers
Once found, your ability to service that first customer will rest upon negotiating and creating relationships of trust. For example, offering your suppliers a cut of your profit, in exchange for good payment terms, creates a great relationship, whilst offering your first customer a discount for a deposit paid before delivery, is a deal maker’s way of funding your first few transactions.
An Angel Investor
Once you start attracting repeat business and/or processing large orders, you may need a boost of capital to help you service your customer demand. An Angel Investor will give you a small amount of money (usually less than a million Rand) to fulfil your customers’ needs, while growing your business. There may be some significant terms and conditions attached to this investment though, and this where your keen negotiation skills will come to the fore – you need to make the smart deal, rather than the desperate deal. Commit to achieving certain milestones with the investor, which will see their return grow, and offers you the opportunity to buy back equity.
Accelerating Towards Profit
Expanding beyond your first phase of growth may require you to look for further funding. This is when you can blend debt and equity fund sources to reduce your overall cost of funding. If you have momentum, cash flow and evidence that your business is growing, you can negotiate reasonable terms for servicing your debt, rather than offering equity in exchange for creating further debt.
Try Not to Grow Too Quickly
The most beautiful, yet dangerous, business dilemma is one where your customer demand has outstripped your business’ ability to deliver. Your business is ‘bankable’ and you’re fully capable of servicing debt, so it may be time to shop around for a business loan, from a bank or financial institution. Beyond that, look towards slowing down your business’ growth a little, and focus on attracting two rounds of investment, possibly a year or two apart. The first tranche will help you to grow, while the second helps you get the price of that funding down allowing you to hold on to as much equity as possible.
Listen in to the podcast below on what and how faith deals are made. They are powerful and beyond anything that a business school can ever teach. You need to believe in yourself, the business and operate with great integrity to get them right!
You’re keen to build a successful entrepreneurial business that creates investment opportunities – Aurik can help. We work with you build your business into an Asset of Value. This is a business that will generate the future wealth you deserve for the risk, time and effort you invest. Sounds right? Contact us today and let’s turn talk into walk!