“There is always plenty of capital for those who can create practical plans for using it.” – Napolean Hill

I am hearing and reading a lot about capital lately.  Or lack thereof mostly.  Could be the commercial banking system being frozen solid.  Or maybe it’s a sign of turning an economic corner.  I’m not sure about you and your business, but we and others are starting to hire salespeople and other new employees.  We are buying new software and hardware.  We are growing and we need capital.  How about you?

I am writing from the perspective of a business owner who constantly needs capital.  I also invest in private companies.  And I work with private investors who invest in private companies.  Sometimes I am a lender.  Many times I am a borrower.  I have also helped hundreds of investors and business owners manage their capital.  Working for over 12 years with the world’s largest investment banks helps too.  We consult with our clients to help them raise money, only when it makes good business sense to do so.  So it’s from nearly 30 years of experience with small business and capital that I share these thoughts.

Whatever your need for business capital may be, the truth is there’s plenty of it out there.  You just need to know how to get it.  And decide what you’re willing to give up to get it.  Some of us will get funded quickly.  Some will never see a dime.  But before you go racing out with your business plan and cleanly-pressed business attire, my question for you is do you really want to do all that it takes to get other people’s capital?  Or can you figure out a few ways to fire up sales and cash flow without having to polish your business plan and raise money?  Think about literally marketing and selling your way to a better financial position.  Because it’s often easier to do this than it is to plan for, market, sell, and raise money from private investors.

The truth is that most of us can’t grow a business without hard core capital.  I’ve written before about capital and in the weeks ahead I’ll share some further stories and insights.  Perhaps we can share ideas and strategies you might want to consider for your own business.   Here’s the ugly truth right now.  Millions of small business owners are starving for capital.  The rules have changed and we as business owners are taking a huge hit when it comes to capital.  I personally lost access to hundreds of thousands in credit for my business.  And forget about me.  There are some real horror stories out there with banks completely leaving companies and the people who created them to hang.

No one in business is immune.  And my personal opinion is the banking system will take years to correct itself.  That doesn’t mean commercial loans won’t get funded.  It means fewer loans will get funded.  It doesn’t mean private investors out there won’t fund your deal.  But they will ask tougher questions and you better be ready to answer them well.  The bottom line is we all need to be creative when it comes to capital.  Not just now.  Always.

Here are three things to consider when it comes to capital for your business.

1.  Think long and hard about whether you want to really commit to raising capital for your business.  If you can’t commit 100% then find a way to grow your business without other people’s capital.  It is a huge commitment of money, time and energy to plan and execute raising private capital, correctly.  The reality is many small business owners will never get a commercial bank to fund their business.  Which means private investors won’t be likely to fund you either.  This is why so many of us do without raising money from other people.  We find our own money in home equity, investment accounts, savings, and scrimping along on a very tight budget until we have cash flow.  Most of us market and sell our way around whatever capital we can get our hands on at the time.  But if you own a business and you need to find capital, be ready to commit to a major effort to raise money, if that’s what you think makes the most sense for your business.

2.  Raise money the right way from private investors.  Private investors, people like me and millions of others, fund private companies.  So do institutions.  But the kind of money I see going into small businesses these days is coming from individual investors.  The little guy so to speak.  I am talking about deals that range in size from $25,000 and up.  Small potatoes.  But if you’re going to raise money from private investors you need to have your act together.  You need to have a simple and clear business plan.  Get help here if you need it.  You probably need legal advise from an attorney who can keep you out of trouble with securities regulators.  You will definitely need to polish your sales skills to deal with individual investors.  And you’re definitely going to need to explain how you plan to use the money you raise so you’ll need to have a solid plan to execute in place.  Most important of all, you must be willing to bear the cost of your capital, both debt and equity.

3.  Be prepared to say no.  I recently turned down an offer from private investor who was interested in investing in our company.  After many long discussions we agreed to not proceed for now.  Unless the terms are right for you and your business, be ready to go without the money.  This is why marketing and selling your way to grow, without raising outside money, is essential.  This is why it’s important to know how to market effectively.  How to sell.  How to service well and get tons of referrals.  How to generate cash flow.  In the meantime, we use credit cards.   Maybe home equity or a loan from a friend.  And this means we don’t have to be distracted with finding and keeping other people’s capital.
So whether you commit to raising money from private investors or choose to go it alone, you have to effectively market and sell.  Right now there’s huge market share that both you and I don’t have.  We could be building more web sites.  We could be selling more SEO and CRM software.  We could be serving more small businesses.  And you could be selling more too.  So once we all figure out how to do this in a way that we generate cash flow and profit, we never look back and we are far less dependent on other people’s capital.

Before you take action on any impulse you may have to attract investors to your business, think.  It’s hard work attracting and keeping other people’s capital.  And it’s hard enough work to start, fund, market and grow a business.  Make a plan.  Be clear on use of proceeds if you were to raise the money.  Do it right.  Or you can market and sell your way to the next level.  Or both.

Feel free to post your comments and questions about capital or any other subject that is business-related.  It’s a great time to be in the business development business.  We love helping entrepreneurs.  We are constantly growing our community of entrepreneurs at WealthNet Partners and we thank you for all your referrals and support.

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This entry was posted on Wednesday, September 16th, 2009 at 12:49 pm and is filed under Debt and Equity Financing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.