When is my business ready to raise capital?
You may have been told that the only thing to do now is grow, and to do that you have to raise capital. The fact is, that’s not always true. When it’s the right time to raise capital you’ll have to jump through quite a few hoops in order to attract the right investors. So how do you know what that time has come?
Half of all businesses in the United States fail within the first five years, 72% fail because they didn’t start with enough money. So whether you’re in growth mode or just starting out, capital is essential to your longevity and success.
So if you’re cash-strapped you might be thinking: I’ll just raise money. Before you do that, let’s review some of the indicators that you are – in fact – ready for a cap-raise (And some that you’re not).
You’re ready to raise capital if…
You have a strong, clear business plan
Failing to plan is planning to fail. Without a clear, well-structured business plan no investor will look at your company seriously and you are truly running from the back of the pack. Get into a peer-to-peer CEO/ Founder group ASAP and learn about what you need to create a business plan.
You have a ton of demand for your products and services… so much you just can’t keep up
If you have back-orders and are promising above your manufacturing ability, an investor sees their return laid out like the yellow brick road.
Your staff is maxed out.
If you don’t know your utilization rates just look around. Is everyone stressed, running on all cylinders, are balls getting dropped? You have to hire to meet demand. Think specifically about the roles you need and what impact they will have on profitability.
You know what the money is for
Just like your business plan, you should have an investment plan.
People send you new business
Reputation means something. If your clients are sending referrals that speaks to the quality of work that you do.
You’re not ready to raise capital if…
You’re just too busy, too too busy to commit to the process
Y
When you raise capital, you’ll need to take a step back from focusing on the business. If the whole thing falls apart when you get a cold, it’s time to hire a business coach, not raise funds.
You’re in a dying, shrinking or static industry
If you are making wingtip shoes, you’re going to have a hard sell to a VC Firm. Look at the growth trajectories and consider what you can pivot to if your industry is waning before asking for investment.
You’re a Control Freak
Be honest, if you can’t have input, you don’t want VC or PEG investment. Some investors are hands-off but you’ll have to account for your spending when its someone else’s money on the table.
You’re looking at an exit in < 3 years
If you think you’re going to sell in the near future, just hang on. having investors makes an acquisition less appealing because they’ll have to be bought out.
