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After working with over 10,000 companies from start-up to international firms, across industries, we’ve created our own definition of finance. Regardless of whatever type of finance you are seeking: whether through your personal funds, investors or financial institutions, it all comes down to this simple definition:
FINANCE BOILS DOWN TO THE ABILITY OF BEING REPAID.
In order to get financing, there needs to be a clear understanding of your business, your end goals, your risks (and how they are mitigated) and how the loan will be repaid. This is typically shown by a strong business plan with projections.
Let’s put it another way to make it a bit easier to understand:
“Hey Peggy, I’ve got this business idea and I’m telling you, this is the next big thing! Seriously! I just need $100,000 to move this forward and I promise that you will get paid back. Can you feel it? Are you with me? Just write me a cheque here and now. Let’s do this!”
Now, we are talking about YOUR money. What would you want to know? Again, the first thing that typically comes to mind is, “Are you going to really pay me back? And when?”
Why are you asking these questions? There’s risk involved. Period.
Requesting finance involves risk. Let’s get comfortable with the actual definition of Risk. Risk is defined, by Wikipedia, as “the possibility of losing something of value. Values (such as physical health, social status, emotional well-being, or financial wealth) can be gained or lost when taking risk resulting from a given action or inaction, foreseen or unforeseen (planned or not planned).”
Investors (friends, family, external investors) and lenders (financial institutions or groups) review business finance requests a little differently. However, the definition above covers everything.
When it comes to requesting finance, for any business, at any stage of growth, risk is inherent. The key to getting financing is first being aware of your risks and then, secondly, doing something about them:
There are six key risks to be aware of, at any stage of the business, that directly relate to getting financing. They are as follows:
This can be both subjective and objective
Subjective: review the reputational risk of this person, business, industry, type of product
Objective: review personal and business credit history, ensure that the business is operating within compliance and regulatory requirements, strong strategic plan
We have outlined some of the key risks involved in getting financing. In your business plans, you must clearly ensure that you have the following: identify, assess, mitigate and monitor (ongoing) your risks.
If you want to build a business, you need to first understand the type of business you are building and why. Every business needs a strong foundation to stand on and grow. Once the foundation is established, you can then move to scalability and strategic growth. Without a solid foundation, as you grow, you will see cracks, and issues and potential tearing of the foundation and yes, some do even collapse. Spending the time to build the foundation is indeed key to mitigating risk, raising financing and running a successful, profitable business!
Here’s to your success!
To learn more, contact our Podcast Panelist:
Serenity Now For Entrepreneurs April 9, 2021
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