If there is a single most important rule for succeeding in business, it probably is to have enough money at your disposal.<\/p>\n
“Most new businesses fail. And if you look at why they fail, the majority are undercapitalized,” said William J. Rossi, a former businessman who is associate director of the Center for Entrepreneurship and Innovation at the University of Florida in Gainesville.<\/p>\n
The costs of rent, salaries, product development, capital equipment, marketing and a lot of other things you might not be able to predict are likely to outrun sales at first – if there are any sales at all.<\/p>\n
“You’re going to be chewing up cash,” Rossi said. So, estimating how much you’ll burn through before your business is profitable – and having access to enough – is important.<\/p>\n
As for sources of money, round up the usual suspects – everybody from family members to sophisticated investors who might bring industry, management, or finance expertise along with their money.<\/p>\n
However, John Eckbert a principal in PCE Investment Bankers in Winter Park, Fla., has some bad news for those who think venture capital might be the easiest source of money.<\/p>\n
“The first place to look is your own checking account,” Eckbert said. After all, nobody believes in you as much as you do – or is as willing to take a risk on you.<\/p>\n
Venture capitalists – the people and institutions that invest in start-up businesses – are a better bet after a company is off and running and showing promise.<\/p>\n
For one thing, venture capital money is a lot tougher to tap these days than even two years ago because of the losses investors have suffered in recent years, Eckbert said.<\/p>\n
“The first thing is get customers,” Eckbert said. If your company is not actually doing business, most venture capitalists want nothing to do with you these days, he said.<\/p>\n
Another big help in attracting venture money is to already have other, credible investors, such as “strategic customers or vendors” who know your industry and believe in your product or your business, he said.<\/p>\n
So, it is only after a company has proved itself to a great extent that it can hope to attract venture capital.<\/p>\n
Take the experiences of the founders of MasterLink Corp., a start- up software company in Orlando.<\/p>\n
Kent A. Weisner and a partner hoped to develop a software product that would make the scheduling and dispatch of mobile workforces such as maintenance workers, plumbers, or painting crews much more efficient.<\/p>\n
Back in 1998, they tried to raise $3 million to develop the software and produce and market the new product. But venture capitalists turned them down.<\/p>\n
Eventually, Weisner, who has experience running other businesses, and his partner had to go to other members of their management team and to individual investors who were more risk-tolerant than venture capital investors. And the entrepreneurs had to launch the company for just $1 million, Weisner said.<\/p>\n
It is only now that MasterLink is headed for profitability this year that the company might make a persuasive pitch to venture capitalists – if it still wanted it.<\/p>\n
But most companies will never be “venture-fundable,” said the University of Florida’s Rossi. That’s because venture capital firms are looking for very high potential returns, “north of 30 to 35 percent a year,” PCE’s Eckbert said.<\/p>\n
Instead, after maxing out their own credit cards and otherwise drawing on their own resources and those of their families and friends, small-business people likely have only “angels” or banks to turn to for help. Angels are usually well-off individuals who might invest in a high-risk, potentially high-reward company.<\/p>\n
The difference is banks lend money at a fixed rate, usually to companies that can prove they are likely to pay it back. Angels take the greater risk of buying a part of a promising company in hopes of gaining much bigger returns.<\/p>\n","protected":false},"excerpt":{"rendered":"
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