Top 5 Mistakes Entrepreneurs Make with Start-up Funding
Category: Business Advice, Funding & Financing
I have a great business idea, but I just can’t tell anyone.
Just the other day I spoke to a colleague of mine who I haven’t seen for a few years, and we got to talking about what we do (for a living). He mentioned to me that he is an entrepreneur…well about to become one – with his new idea that will become the “next big thing”. So I thought to myself, of all the “entrepreneurs” I’ve ever met, they all had pretty much the idea that will be the next big thing, but they were still stuck in a 9 to 5 job. So if everyone has this big idea that will make millions of dollars why not do it? Why aren’t more entrepreneurs out-there that are leaving their jobs and focusing on their dreams of being an entrepreneur?
The simple truth is, it takes money.
An idea will only take you so far, but unless you have some financial backing to support your dream and to turn it into a reality, you really don’t have that much. That being said, the average person doesn’t have the funding needed to start-up – and the biggest fear is leaving your job with a steady pay-check to start anything will result in keeping your great idea just a thought.
But you are probably not one of those people, are you? You are a true entrepreneur whose blood boils on thought of starting a business since you are in love with the idea so much that you are willing to do anything it takes. All you need is to land the right financial backing and you are a go.
That sounds great, right? The problem is that it isn’t that easy at all. To an investor, whether it be a bank, the government, a private lender or a silent partner you are a big risk. Why give you money to start your business when they already know the statistics of how many new businesses fail each day. So what can you do? How can you convince a potential investor to fund your great idea so you can start moving forward?
You will have to try, try and try again – but do it in a way where you avoid the top mistakes people make, which are:
Know how much funding you actually need.
One of the biggest reasons why small business start-ups fail is due to the fact that they don’t accurately calculate their start-up funding they need. Most of the time they fail because they didn’t ask for enough funding.
This is not just a number that comes out of thin-air. The amount of funding you need for your start-up should come from research, expectations and your needs. One rule that I usually go by is to think of everything in your business failing, going as bad as possible and plan accordingly from there, as to how much money you will need to fix and survive.
Not having a good business plan.
Showing an investor an idea you have isn’t enough these days. You need to show the investor that you have a well-developed plan – and this is where a professional business plan comes in handy.
Borrowing from friends and/or family. Borrowing money from a friend or a loved one is the biggest mistake you can ever make. Even though this at times may be the easiest way to obtain funding for your business start-up, it is one that can back-fire and cost you more then you’ve bargained for. However if this is the only way to run your business – make sure you have a legal contract binding the both of you in a way that works for both parties.
Don’t give too much overwhelming information to investors.
Giving too much information is never a good thing. It confuses people and sometimes scares them away. And this is the last thing you want to do when you pitch your idea to investors. Investors (banks, private investors, venture capitalists and the government) want to see how much you believe in your business model and how much you know, but stay focused on your plan and give them the selling points without going overboard. Like a good dinner, you have to break it up into chunks making each portion easy to digest. Don’t be “too too” careful.
Being afraid to share your idea is another big mistake. Being scared that somebody will steal your idea and make it their-own – it is definitely something to have to consider. But the fact is, if somebody is to steal your idea, they will eventually either way. Take a look at Coca Cola and Pepsi. Not necessarily a stolen idea, but the same principal. You must be able to share your idea to get funding, otherwise you will not be able to impress anybody at all. Getting start-up funding for your small business in Canada isn’t easy at all. However if you are to take the few mistakes we discussed here today and apply them towards your idea and pitching for funding, hopefully it will make a difference.
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