You've got this great idea you are sure will generate money for you. You've even run it through some friends and family members. You may have possibly tendered your imaginary resignation letter as you are certain this your idea is the next big thing. The only thing stopping you from kicking Apple off the no.1 position it had held in the revenue market for so long is the capital to kick-start your wonderful idea. Your N9,345 account balance just won't get you anywhere, not even a business logo.
Naturally, you may be considering a loan from family and friends or lenders around you that you have heard about as quickly as possible, so you can build some momentum for your business. While we encourage your passionate stance to bring your business to life, there are some things you must do before considering taking external funding.
Before you go out to seek funding, make sure you've satisfied all the requirements of our checklist:
- Have a Completed Business Plan
This is the first requirement you must meet because it is by far the most important. It's the only way to convince local or foreign lenders that you are serious about starting a business and you are not just looking for funds to renovate your apartment. It is the foundation of your business and without it, you can't build a sustainable business. The goal of your plan is to give interested lenders or investors a general summary of what your business is and most importantly, how you intend to make money.
- Conduct Your Market Research
A market research is what separates your idea from a lazy and unrealistic dream. This is the data that will demonstrate the viability and scalability of your idea. Your idea is the theoretical aspect of the business. Your market research is the practical aspect. It's what will inform you whether your business has prospects.
- Have a Sales/Financial Forecast
Many business owners agreed that this is the most interesting part of your business idea. It's what will convince an investor or lender that there is a high likelihood of getting back the money they have loaned you. If you are not good with excel sheet or sales forecasting, now is the time to enrol in a class or get a qualified business analyst to guide you through. Your financial forecasting is what will be proof that you know how your business will make money.
- Have a Yearly or Quarterly Plan
Where do you see your business in a year time? 2 years? 5 years? 10 years? Don't fall into the initial rut only. You need to project your growth over the next few years. No lender or investor would touch a business that lacks a long-term solution.
- Have Your Potential Targeted Demographics
While carrying out your market research, you should have a customer base for the product/service you intend to offer. Who are your customers? How would you reach them? If you can acquire at least a handful of testimonials from your prototypical customers or a major client that is interested in your idea, investors will be much more interested in working with you.
- Have an Existing Capital
This is the second most important requirement for your potential business. It's what would convince investors or lenders that you are willing to stake your personal funds to float the business. No investor or lender worth its onions would touch a business devoid of personal funding. It's what shows that you are committed. Take whatever savings you can spare and gather up some initial capital from friends and family to show investors you already have some financial backing.
- Have a Financial Objective
Before you start asking for funds, you must know exactly how much money you need and why you need that much. To an investor, there's a huge difference between saying, "I need some funds for my business idea" and "I need N3, 000,000 for equipment, N1,500,000 for marketing activities, N1,000,000 for an office, and N2,000,000 for creating my MVP". The latter shows you have a strategic plan and lets your prospective lenders know what their funds will be used for.
- Finally, Is this the right lender for You?
There are different types of investors and lenders. You need to do some research. Look for a lender that works with businesses that are like yours. Details to look for include the business size, industry, and loan amounts. And most importantly, look at the terms your potential lenders are offering. You must agree to the loan terms before receiving money. Details to look out for our interest rates, repayment schedule and the lenders' requirements for business loans. It is very important that you have a good working relationship with your investors always.