While many entrepreneurs easily find a way to self-fund their business project from the get-go, it’s inevitable they will eventually have to inject additional funds into their project at one point or another. Financing is a key step for a start-up. It divides up stillborn project from those who will surpass the crucial five-year mark. That said, many entrepreneurs see financing as quite the puzzle and have a lot of questions that stay unanswered.
How can I get financing for my project? Who should I apply to for financing, and how to go about doing that? How do I convince funders to get on board? If I get declined, is it a definitive answer? What can I do to prepare myself well before starting the process?
In the end, is it that complicated to get financing for your project? The answer to that is: NO!
I assure you, the process is actually a lot simpler than you think. To help you with this crucial stage in your business launch, here are a few tips.
Know your project cost inside and out
I’ll never say this enough, the entrepreneur needs to become an expert when it comes to his or her project cost. As the architect of their business project, they are the only one who can speak to its overall cost. More importantly, the entrepreneur should be able to explain their project cost in detail. There’s the key, really! But why is it so important to know your project cost in detail? For two main reasons. First, funders will want to know how the funds will be used. In other words, they will want to understand how their money will be spent. It is important to understand that certain funder have restrictions when it comes to what they can and what they cannot fund. This will vary depending on their investment policies, as well as the risk they are willing to take on with each project. For example, some will mostly finance equipment since they represent tangible assets. Hence the importance for them to know what the funds will be used for.
Second, knowing the details of your project cost represents a planning exercise in and of itself. It ensures that all necessary resources for a successful launch have been identified and listed, without exception. The exercise also allows you a chance to contact different product and service suppliers to validate the listed costs. With a few quotes on hand, your startup cost will be much more reliable. On another note, with your supplier research already done, the project roll-out will be that much easier because of it. Another reason that detailing your project cost is a planning exercise. To establish your project cost, simply ask yourself: What resources do you need to make it happen? Make sure to make a comprehensive list. You’ll be surprised to see what by thinking about it thoroughly, some unexpected elements will pop to the surface, which is precisely the goal of the exercise.
Make realistic financial projections
Although understanding your project cost is important, it won’t be enough to convince a funder. You’ll also have to know your potential for profitability. To demonstrate that their projects are viable and profitable, entrepreneurs should be able to estimate their operation costs as well as their sales revenues. While estimating your operation costs can be relatively simple process, it gets more complicated from there when it comes to sales estimations. Different methods exist to estimate sales, but we won’t go over them in detail in this post. Here, let’s simply retain the importance of realism. Many entrepreneurs try to demonstrate their strong business project potential by projecting gigantic sales. While they believe they’ll leave funders salivating at the opportunity, such an approach will instead make they lose all credibility. What you have to understand is that entrepreneurial funders have evaluated hundreds of business projects. They have seen it all, and know that chances of the next Facebook are slim. With more modest projections, entrepreneurs instead show the realism of their project and their process.
Know who you are talking to
It’s not rare for entrepreneurs to ask for funds they simply won’t be able to obtain. While the battle is already lost, they stubbornly try to ask for them anyway. It’s a classic mistake that is often made at the financing stage. The problem resides in the fact that many entrepreneurs take financing refusals personally. They automatically fall into debate mode and try to convince the funder to finance their project. What is important to understand is that not all funds are targeted to all projects! Some funders reject certain projects in advance based on their business sector, their size, their stage of development, or even their level of innovation. You therefore need to know what doors to knock on, as well as avoid wasting time on funds that simply can’t be obtained to finance the project in question. Before applying for financing, you’ll need to study the entrepreneurial ecosystem.
Which funders exist in your community? How much financing do they give annually? What projects were financed by them last year? What are their eligibility criteria for funding? You then need to have an honest discussion with your advisor on your actual chances of getting financing for your project.
For example, at Futurpreneur Canada, we’re proud to have a democratic philosophy to entrepreneurship. Our start-up financing is one of the least restrictive in Canada, allowing all types of viable projects to come to light. Annually, our program offers financing to over 1,000 new businesses across the country.
Relax, a refusal is rarely final!
Since starting out in economic development, I’ve worked with over 80 different start-up funders. And few would refuse to reconsider a project in the future if its situation has improved. This said, not many entrepreneurs readily accept a refusal when it comes to financing. They try to change the decision right away because they don’t want to adjust their launch schedule.
If you face a refusal, I have one piece of advice: take a deep breath!
It’s highly probably that this refusal turns out to be a blessing! In economic development, coaching and financing are parts of a same whole. If you project didn’t receive financing, it’s probably because your business model needs some work or a complete overall. By taking note of the reservations voiced by funders to explain the refusal, you can then take charge of the risk management for your project. While it can be a hard moment for your ego, going back to the drawing board will be beneficial to your entrepreneurial journey. This said, it’s rarely what we want to hear when someone declines our request.
Financing is a process
The financing step is not instantaneous. It’s a process which requires a certain amount of planning. As you can understand, financing your business project will need time, patience, and especially deep reflection on the project.
By accepting from the start that financing and coaching support are inseparable, you’ll truly reap many benefits from this essential step, which will power you up rather than slow you down.
To find out more about start-up financing at Futurpreneur Canada, click here.
Written By: Jean-Philippe L’Écuyer, Entrepreneur in Residence, Futurpreneur Canada, firstname.lastname@example.org