Many growth companies will often require funding at some stage. But for SMEs, where do you go to access the capital you require to fund the growth of your business?

In the past it would be commonplace for you to prepare your accounts and head to your local business banker, where you start the begging process. Your business banker while looking through your business plans, projected cash flows and existing cash flows, will often have two questions. How much do you want to loan? And do you have enough equity in your home/s to secure it against?

As most SMEs will know, getting a loan from your bank for a new business is not easy and has become a lot more expensive. Combine that with global economic uncertainty and the number of funding options available for early stage and growth companies.

Make no mistake – there is money available and it’s with sophisticated and professional investors. These investors are generally ex-CEOs, MDs, high-level executives and even practising accountants and lawyers, who are always on the lookout for new and exciting opportunities which they can invest in, and add their skills and introduce their networks to.

If you are one of the companies who seek capital, here are some proven tips that will improve your likelihood of success for raising capital from investors:

1) Allow sufficient time

The time taken to raise capital has increased significantly. Often when people begin a capital raising, they expect that they will easily find an investor who will love their business as much as they do and have the money raised within three months.

This is highly unlikely and you should expect that it might take between six to 12 months to raise the money… so make sure you plan ahead.

2) Allocate a budget

Raising capital is not free for the company seeking the capital, as many people seem to assume.

You need to budget for advisory, legal, accounting fees, creation of your Information Memorandum and also the promotion of your Capital Raising Offer.

It is very important that the people you involve have deep experience in raising capital and it is what they specialise in. By doing this, you can be assured they will be aware of some of the pitfalls which companies can fall into. Your local accountant for example, may not be the best person for creating cash flow projections or developing a valuation for the business.

3) Prepare an Information Memorandum

A well-prepared Information Memorandum clearly explaining how the business will generate income and profits is of utmost important. It is also important that you highlight information about the management team involved with the company.

For many investors, this is an important signal as to the potential of the business. In future articles, I will talk about how you can build a high quality board without paying fees.

It would also be wise to develop what is called an Executive Summary. This provides a one to two-page snapshot of the business and its potential. When you have investor enquiries, this is often the document which people want to see first.

4) Promoting your capital raising

Distribution is a vital component. You need to place your business in front of investors who are specifically looking for these types of opportunities.

You may also find that existing suppliers or even customers may seek to be investors, as there are strategic benefits for them in having a shareholding in your business.

It is vitally important that in promoting your capital raising that you do not break any laws, and that you abide by Section 708 of the Corporations Act.

5) Seek smart money

Smart money is defined as “Investors who can add value beyond the financial aspects”, that is, they can substantially add value to your business. Smart money often has 15 to 20 years’ experience, IP and networks, which you can leverage off. They also have knowledge of pitfalls to avoid. 

One good example is a client of Wholesale Investor who was a web application-based business generating approximately $10k to $12k per month. They attracted smart money from our investor network, which rolled their sleeves up and became active with the business. That company, 18 months later, is now generating up to $100k per month.

While the money was important, the knowledge they brought to the deal was invaluable.

6) Be persistent

You need to persist until the money is raised, or you need to modify your offer. The truth is, there will be more investors watching and observing your progress than what you think. You need to be sure that you are consistently providing updates on your progress and the milestones you hit.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.