How to Make Your Startup Fundable
Whether you are trying to apply for bank loan, convince a few friends or family members to invest in your big idea or raising a round of venture capital on Sand Hill Road, your startup needs to be “fundable.”
While your concept and execution is all your own, there are a few basics that all fundable startups have in common. Follow these guidelines whether you plan to apply for a traditional bank loan or raise money from private inventors.
Mind the Basics
When preparing to raise money it’s easy to get swept up reading venture capital blogs or dreaming about the design of your company’s campus once you’re ranked in the Fortune 500. But fundable companies always keep their eyes on the basics, like:
- Personal Credit Score – Just as a good credit score demonstrates trustworthiness, a bad credit score can make lenders question whether you are the best steward of your money. Take steps to maintain a good credit score, such as paying off debt, paying all loans on time, and keeping credit card balances low or nonexistent.
- Good Financial Habits – Pay bills and taxes on time, avoid non-sufficient funds charges in your bank account, and don’t overextend your credit – all before you begin trying to fund your startup.
Disciplined financial habits not only help you get your business to profitability sooner, they cement your reputation with investors and financial institutions.
Trust a Financial Professional
These days everybody is “bootstrapping” a “lean startup.” But one place where you don’t want to skimp is on your financial advisor.
Your advisor, may she be an accountant, lawyer or certified financial planner, can guide you on corporate structure, tax strategies, timing and other important factors when it comes to obtaining funding for your business.
A business that plans to slowly bootstrap using only the owner’s capital will have a very different outlook from a business that plans to raise money, so make sure you’re setting your business up for success when it comes time to reach out to investors or lenders.
Keep Precise Financials
Speaking of finance pros, you should also keep a close eye on your business’s financials. Many types of loans require an up-to-date balance sheet (if you’ve been in business long enough to have one), at least a couple of years of back tax returns and recent bank statements. Investors will also do due diligence on your company before writing a check.
Don’t miss out on a funding opportunity because your books are a mess.
Know What Investors Want to See
A traditional financial institution funding your company wants to see an organized balance sheet showing revenue and profitability.
Angel investors, venture capitalists or other early investors want to see potential for profitability. After all, they’re in this to make money, not realize your dream. When making your startup fundable, stay in that mindset, and look at your company with a critical eye from an investor’s point of view.
Keeping these guidelines in mind should help you create a “fundable” startup. Good luck!
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