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A Complete Sample Business Plan Format, Template and Outline You Can Use As a Guide

Do you want to learn how to write a business plan for small business? Do you need a sample business plan template? Or you just need a complete small business plan format or outline? Then read on.

Today, I want to share with you a practical sample business plan format and outline. It outlines everything that I covered in the my previous posts with respect to writing a business plan that attract investors, so seat back, read and digest.

                A Complete Example of a Business Plan Format and Outline You Can Use As a Guide

Business Plan: Rainbow Kites, Inc.

SUMMARY

BUSINESS CONCEPT

The Kite industry has expanded rapidly in the past several years and growth is expected to continue at a strong pace for the foreseeable future. This offers excellent opportunities for new companies to enter this market. We intend to address the needs of customers in this market who seek higher quality, higher priced kites. We will address this need by importing, selling and distributing higher end kites in the US and Canada. Distinguishing characteristics of our business will be top quality products, special emphasis on higher end independent retailers, and high level of service.

CURRENT SITUATION

We are a start-up company, incorporated in 1998 in the State of California. The principal owner is Tom Anderson whose title is President and who has many years of experience in the toy industry. Other key personnel include Nancy Anderson, his spouse who has experience in customer service, bookkeeping and office work. At this time we are seeking additional equity capital to compliment our own equity investment and seeking to arrange a bank line for inventory and receivables financing. We have firm commitments to distribute several highly sought after overseas kite manufacturers and have verbal commitments from independent retailers primarily along the West Coast to stock our products. We hope to ship our first products within six months of finalizing financing arrangements.

KEY SUCCESS FACTORS

The success of our business will be largely a result of superior products, superior service, extra attention to detail throughout our operation, personnel and our high level of experience in the industry.  In particular what really sets us apart from the competition is that we are ONLY going to sell high end kites and we are ONLY going to sell to higher end outlets. This will allow us to give absolutely top service and product selection for these accounts without getting distracted from the very different product and service demands of the more mass market outlets.

FINANCIAL SITUATIONS/NEEDS

In order to effectively launch the business, we project a total need for $300,000 in equity financing. Principal uses of the funds will be to finance operations until cash flow becomes positive and to create a stronger balance sheet in order to help secure additional bank lending against to finance inventory and receivables. To date we have raised $132,000 from founders, Tom and Nancy Anderson, and their relatives. We project that the company will be profitable within two years. We project that within three years of reaching break-even that this new investment could be cashed out by either the founding partners purchasing this investment stake or by replacing the investment stake with additional bank financing.

Sample Business Plan Template

                VISION STATEMENT

Our vision of what our company will become in the future is to have developed relationships with key retailers so strong that they will view us more as indispensable partners, than just another supplier. We will work closely with each retailer we serve to recommend product assortment unique for their customer base, appropriate stocking levels, pricing and display assortments. We will constantly seek out and work with the manufacturers we represent to deliver the most innovative and exciting products possible to the retailers we serve.

MILESTONES

1. Overseas manufacturers agreements in place…done.

2. Verbal commitments from many West Coast retailers…done.

3. Presentation to potential investors…underway now.

4. Presentation to potential banks for inventory and receivable financing…underway now.

5. Financing commitments in place..60 days.

6. Product catalog completed…30 days…

7. Additional sales reps being recruited…underway now…

8. Sales rep selection finalized…60 days.

9. Warehouse lease signed…90 days.

10. First written orders from retailers… 75 days.

11. First orders to manufacturers…110 days.

12. First shipments from our warehouse…160 days.

MARKET ANALYSIS

THE OVERALL MARKET

The overall size of the industry is currently $150 million in the US and Canada. Because the industry includes a very diverse group of product types with significantly different characteristics, it is more meaningful to break out analysis of the industry into roughly two groups. The first group and by far the larger unit volume are lower end kites sold primarily through mass market outlets such as discount department stores. The second group are higher end kites that are sold largely at independent and specialty chain stores. While the unit volume is much less, the dollar volume is approximately the same ($75 million) as that for lower end kites because the average price point is much higher.

CHANGES IN THE MARKET

The most significant development in this marketplace recently has been the shift in toy and kite business away from independent stores to national mass marketers over the past decade. However, recently this trend has slowed as independent toy and novelty retailers have become better at differentiating themselves and their product selections from those offered by national mass marketers.

MARKET SEGMENTS

The market is primarily segmented by distribution channel. The mass market retailers are looking for low-priced products and a high percentage of their products are licensed merchandise, for example based upon kid’s cartoon characters. Independent specialty retailers however are trying increasingly to be as different from the mass merchants as possible and are generally selling much higher priced product and seldom want merchandise based upon licensed cartoon characters.

It should be pointed out that there are few stores that sell just kite merchandise–even among independent specialty stores most of the volume in kites is sold at stores that sell a wide assortment of other merchandise such as toys or other novelty items.

TARGET MARKET AND CUSTOMERS

Our target market is independent and small chain merchants that are committed to selling higher end kite products. We particularly want to focus on accounts that just sell higher end kite products and that are committed to stocking a selection of at least a dozen different kite products. These accounts we feel offer the best growth potential and will benefit the most by the help we can bring to them in selecting and displaying our higher end merchandise.

CUSTOMER NEEDS

The basic need of target retail customers is to differentiate their store from mass market stores and give customers a reason for shopping their store and paying significant premiums for their products instead of getting a low-end product at a discount department store.

These stores really appreciate stocking a line that is not sold at mass market accounts. They also appreciate dealing with an importer who is committed to specialty stores exclusively, not mass market accounts.

CUSTOMER BUYING DECISIONS

The buying decision is almost always made at an in-person sales presentation. The personal touch appears to be essential for moving buyers to action for this product because at these high end retailers are very demanding about the product quality being stocked in their stores. They insist upon seeing finished products, not just mock-ups or catalog pages. Some purchases are made at trade shows, but only a small percentage.

Sample Business Plan Format

COMPETITIVE ANALYSIS

INDUSTRY OVERVIEW

Across the US and Canada there are many firms that distribute kites. The vast majority however distribute only one or two low end kites as a very small part of their overall distribution business.

There are several distribution firms that offer between a dozen and as many as one hundred kite products. These firms represent many different products and the sale of kites represents a very small fraction of their business. These firms also to a wide variety of outlets including mass merchant accounts.

CHANGES IN THE INDUSTRY

The big change in the kite industry over the last few years has been the concentration of lower end kite sales in mass market accounts, along with a strengthening market for higher end kites in upscale specialty accounts.

Current distributors representing larger kite product lines while still selling to a wide variety of outlets, have tended to focus most of their efforts on selling lower end products to mass market type accounts–where their revenue is much greater.

OPPORTUNITIES

While the competition is well-established in, and gives a lot of focus to, current major markets for this product, they are much less aggressively pursuing the higher end kite market. This market offers terrific potential because it has significant growth potential, and the competition is not well-entrenched here. Furthermore, this market differs from the other markets in the many important ways. While this market may not be the largest, it appears a very solid opportunity for a newer competitor.

THREATS AND RISKS

Because we are a small firm, we do not anticipate a meaningful or prompt reaction to our market entrance from our larger and more established competitors. We think a strong reaction from existing distribution firms is particularly unlikely because the primary competitors derive only a very small percentage of their business from kite sales, and even that revenue is largely from mass market accounts that we plan on avoiding. However, we have developed contingency plans for certain reactions that competitors may make. If a competitor lowers their prices on the exact same product we are offering we will match their price on that product. But we intend as much as possible to emphasize products that our competitors are not selling to begin with.

STRATEGY

KEY COMPETITIVE CAPABILITIES

We are better positioned than our main competitors to take advantage of the increasing demands of upscale independent specialty stores to sharply differentiate their kite selection from those of mass merchants. Because we are going to focus exclusively on importing higher end kites for independent specialty stores we will be much better able to serve their needs than current distributors who handle many items other than kites and also give their primary attention to larger mass merchandise customers.

Tom Anderson’s extensive experience in the toy business and his solid knowledge of the kite market in North America, his personal contacts at independent retailers on the West Coast and his contacts at overseas suppliers give us a strong competitive advantage.

Nancy Anderson’s background in running offices and handling customer service issues will give us a strong service advantage.

KEY COMPETITIVE WEAKNESSES

Our primary weakness is that we are a new business competing largely against established firms. To significantly build sales, we must not just find new customers–we must take customers away from existing firms. However by offering a superior selection of kites and focusing exclusively on upscale independent stores we feel will can quickly open accounts at many retailers and build strong relationships. Co-founder Tom Anderson has had many discussions with owners and buyers at retailers that confirm this opinion.

Another disadvantage we have is stronger personal ties with accounts on the West Coast of the US and Canada than in other parts these countries. We plan on offsetting this weakness by hiring experienced commission reps for other territories. We have already had preliminary discussions with several highly successful reps and these reps have shown interest in continuing discussions with us.

Financially we do need additional funding. But after the targeted funding is in place we will have ample financing for the foreseeable future.

STRATEGY

Our strategy is to focus 100% of our efforts on the market for upscale kites. By focusing all of our effort and energy on this particular niche, we expect to quickly develop and maintain a leadership position. While other firms try to be all things to all people, we believe that our singular focus will give us significant advantages. Most of the firms serving this niche now also serve much larger markets and give only secondary attention to the upscale. On the other hand, our firm will give our total focus to this niche; our key people will stay in personal touch with customers in this niche; and we will be able to respond to changes in this market much faster than our competitors.

We will offer the best, most highly personalized service in the marketplace we serve. Especially being a very small, owner-operated company, we intend to use this to our advantage to be absolutely certain that every one of our customers receives excellent service. We will go out of our way to make sure that our customers know that they truly matter to us. For example we will carefully recommend seasonal inventory plans for each store that reflects the customer traffic that the store receives. We will also make display suggestions and to create a number of displays that can be adopted to the needs of particular stores. Sales reps and in-house employees who deal with customers will be carefully trained and will be given wide latitude for insuring that customers are always satisfied.

Sample Business Plan Template

PRODUCTS/SERVICES

PRODUCT/SERVICE DESCRIPTION

Our underlying philosophy in selecting products has been to choose lines that will bring excitement, surprise and satisfaction to demanding higher end customers. We personally test each individual product. Special attention is giving to ease of assembly, durability, and general overall attraction.

We prefer to choose lines that we can represent exclusively, but because our first priority is on representing top-of-the-line merchandise, we have agreed to take on two leading lines on a non-exclusive basis.

A complete draft copy of our first catalog detailing our initial product lines and products is available upon request.  An important component of our business is not just our products but our service. These are some of the important service elements we offer:

-Stocking of all products offered in our West Coast warehouse, avoiding long waits to fill orders from overseas

-Detailed advice on inventory planning and sales forecasting for individual stores

-Display fixtures custom built to suit the needs of our customers

-Full returnability for any product defects

-Coordination of co-operative advertising programs with manufacturers

POSITIONING OF PRODUCTS/SERVICES

We intend to position our business not just as a distributor of products, but a partner bringing a high level of service to the stores that we enter into business with.

We will work with stores through merchandise selection and display options to significantly increase the sales and profitability of their kite business. By doing this we expect to develop a strong loyalty among our customers.

Small Business Plan Format

 SALES AND MARKETING

MARKETING STRATEGY

Our basic marketing strategy is to work with our retailers on a one-to-one basis to develop unique marketing programs for them. Especially because we want to develop close working relationships with our customers we want to establish accounts in as personable a way as possible too. Hence we will overwhelmingly emphasis in-person sales calls to build accounts.

We will closely integrate all of our marketing and sales efforts to project a consistent image of our company and a consistent positioning of our products or services. We will build this image around our name “Rainbow Kites, Inc.” and will emphasize to retailers to wonderful color and excitement that a well-done display of top quality kites can add to their store.

While we will attend some trade shows and produce a color catalog, these marketing initiatives are seen as supporting, not competing with our independent sales representatives.

SALES TACTICS

Our primary sales method is face-to-face selling by independent reps A particularly important aspect of our sales process is that we will fly all of our independent reps to our West Coast office to extensively train them in how product line, in building displays, and in building a bigger kite business for our customers.

We will insist that our independent reps represent only non-competing, non-kite lines. We will stay in close phone contact with our reps in addition to having sales meetings with them at least four times per year, usually at major trade shows.

We will pay our reps on a “ledger” basis, giving them commission on all sales in their exclusive territories even if the account phoned the order in directly to our main office.

ADVERTISING

We will have a small advertising budget, devoted exclusively to trade publications designed to reach buyers and owners of upscale independent stores. The objective of our trade advertising will be limited to reinforcing the image of our company and the excitement of stocking upscale kites. All ads will be four-color and between 1/4 and 1/8 page in size. Each ad will prominently feature our logo and a bright, colorful, changing display of upscale kites.

We will also work with our retailers to obtain co-op advertising funds for their own local advertising. Currently very little co-op money is being provided by kite manufacturers, but we believe that we can make more funds available especially if we work with a US ad agency to develop effective advertising layouts and copy that our retailers could use.

PUBLICITY

Our publicity effort will be three fold. For one we will send news releases to trade magazines to try to get product or company feature coverage in front of the eyes of retailers. Second we will product a few generic press releases about kites that our retailers can use to try to obtain publicity coverage for their stores in local publications. Third we shall have a quarterly newsletter for retailers that we are currently serving or hope to be serving. We anticipate sending 1,000 copies of the news release out our first year and gradually increasing to 2,000 copies by our third year. In the newsletter we will highlight not just our products, but also display ideas and success stories of stores who increased their kite sales.

TRADE SHOWS, ET. AL.

We will have a small booth or table top display at four national conventions each year, including the National Toy Show in February in New York, The Toy and Hobby Show in April in Toronto, The International Gift Show in Las Vegas and the West Coast Toy and Gift Fair in May. We will emphasize not just our products but the custom-built displays that we are producing for retailers.

We will also provide limited funds for display space for our independent reps at regional trade shows that they attend. Typically we will pay for one table top display.

OPERATIONS

KEY PERSONNEL

The Company will be managed by the two founding partners, whose individual areas of expertise cover many of the functional aspects of the business. Tom Anderson will serve as the President of the Company, and will be responsible for Product Selection and Sales & Marketing. Nancy Anderson will be the Vice President, in charge of Administration. She will be responsible for customer service, accounting, shipping and the general administration of the business.

Tom Anderson has a long history of experience in the Toy Business and specifically in Kites. For several years he grew the Kite business at Ocean Gifts and Toys in Los Angeles into one of the largest and most profitable exciting in the country. Tom has a many industry contacts and an in-depth knowledge of the kite and toy business. See Tom’s resume for further details.

Nancy Anderson directed a staff of twelve as the manager of customer service for LA Selections, a major local jobber of novelty goods. She has also held a wide variety of other inside business and operations positions. See Nancy’s resume for further details.

ORGANIZATIONAL STRUCTURE

The organizational structure is very simple. The independent commissioned reps will report to Tom Anderson. And support staff at the office and warehouse will report to Nancy. Because Tom will frequently go on buying trips to the Far East or be on the road selling, Nancy will be able to support any day-to-day needs that the reps may have. However, even when Tom is on the road he will be in constant touch by computer or phone.

PRODUCT/SERVICE DELIVERY

In order to deliver high quality, personalized service we will carefully select all employees–especially sales reps and customer service representatives who deal directly with customers. Tom is currently interviewing candidates for sales reps; we will carefully review references not from past employers or manufacturers but from retailers whom these sales reps have served. We will also make sure that each employee understands our way of delivering quality service to each customer. We will have immediate back-up support available by phone from our office for more difficult service issues. And we will give employees enough latitude so that they can respond immediately to almost all customer requests or complaints, which in this industry usually mean granting prompt credit for damaged merchandise.

CUSTOMER SERVICE/SUPPORT

We intend to prioritize customer service and make it a key component of our marketing programs. We believe that providing our customers with what they want, when and how they want it, is the key to repeat business and to word-of-mouth advertising. Not only will we train our employees to deliver excellent service, we will give them the flexibility to respond creatively to client requests. In addition, we will continually monitor our clients’ level of satisfaction with our service through surveys and other convenient feedback opportunities.

Initially we expect to have few enough accounts so that Nancy and one additional employee can handle all customer service issues. Having just one employee to train should help insure that Nancy can help make the new hire a top performer. As our business grows we intend to hire additional customer service people one at a time and pay a premium over market labor rates to attract and retain quality help.

Shipping problems are a huge issue with the firms that we compete with largely because they insist on using surface shipping methods to keep their costs down to charge low prices to keep their mass merchant accounts happy.

We intend to use air freight to import our kites from the Far East. This will add to our costs slightly. But because all of our products are more expensive it makes more sense for us. It will also allow us to have much thinner inventories in our warehouse without risking stocking out.

Our relatively high cost of shipping has put us at a competitive disadvantage. The current cost of shipping for an average order is $…, which we feel can be reduced by …%. We intend to achieve this cost reduction by putting our overall shipping requirements out to bid.

FACILITIES

We plan to lease approximately 10,000 square feet of space as soon as our financing is finalized. We have a specific property in mind and have a tentative agreement with the landlord’s agent. This building located near LAX airport has 8,500 feet of warehouse space and a small 850 square foot office. The lease rate is $6.35 per foot triple net for a 2 year lease with the option for two additional years at an increase of 5.9% per year.

The building is located in a busy industrial neighborhood, but because we do not intend to have customers visit us we have decided we are better off with a lower-rent location, than a location that could double as a fancy showroom.

Wow !!! At last, we have concluded this article, I hope the issue of how to write a business plan has been trashed out.

This sample business plan format was originally located at www.businesstown.com/planning/creating-rainbow.asp

4 Creative Steps to Financing your Small Business Start Up – When no one wants to invest with you

How do you raise capital to start a business when you don’t have the money? How do you start a business when no one wants to support you with capital? How do you finance your small business start up without money? These are the issues I will treat today.

Raising capital is one of the most challenging tasks of starting a business and the challenge never ends. Before your business is launch and even after you’ve established your business; capital will always be a problem. I have written extensively on the issue of financing small business start ups but I will dig deeper into it again in reply to an email I got. Few days ago, I received an email from a budding entrepreneur. Below is an un-edited transcript of the email with some important key point bolded.

“Good afternoon Dear Bro. Martins,

I have successfully completed my Entrepreneurial Development Training at the EDC. It was indeed an eye-opener. My major challenge however: is how to raise the Start-Up Capital required to start my business? I intend going into the aquaculture industry (catfish farming). I have already been trained at the EDC to write a business plan, which I have already done and submitted.

Initially I thought I could just start the business with maybe N600,000 (approx $4,000) but during my training, I discovered that I would have lost that money, because I did not put into consideration the following:- Pre-Operating Expenses, Initial Operating Expenses (for the 1st 4 months of business) and Opening Stock (for the 1st month of business). The aforementioned details would form what we call the Start-Up Capital.

Now I have a (2 years) business plan with a Start-Up Capital of about N4.9Million (approx $32,000) (including money to lease a land, where my farm will be situated and other things). I seriously do not know how I can raise this sum but I also know that I can start small. But the question is how do I start small in this business, without a land of my own?

Bro. Martins, I am not a lazy person and I only wish I have the aforementioned sum of money, so that I can start off. I seriously need to start doing something, so as to raise the funds needed for my business and realize my dreams and goals of been a successful entrepreneur. What do I do now Bro. Martins? I need your advice. I anticipate your positive response. Best Wishes.” -  (Name withheld)

After reading this email, I decided to write a reply but not just to this individual; I intend to use this reply as leverage to reach out to other entrepreneurs who are also in this same situation. This is the sole reason why I wrote this article. After critically analyzing the email above, I noted three positive things:

  1. This individual has a burning desire to be an entrepreneur; and he’s prepared to put in the required effort.
  2. This individual has taken the pain to get trained on the fundamentals of starting and building a business. A move which I applaud and recommend for those who want to start a business.
  3. This individual has invested time in writing a business plan; and that business plan became an eye opener for him because it highlighted some unforeseen challenges.

But the problem now is: how will this person raise the needed capital to pursue his dream project? There are several ways to raise capital but each has its upside and downside. So in this article, I will be critically analyzing ways to raise capital using this person’s situation as case study.

                How to Raise Capital for your Small Business Start up

     Raise Capital from Family and Friends

One thing about life and business is that you will never know what works and what doesn’t until you try it. If you are in good relationship with your family members and friends; then you can approach them and tell them of your plans. But don’t go about telling everyone of your plan; identify those who you feel have the capacity to provide you with the needed fund and approach them.

But as a side note, you should be prepared for disappointments. Family and friends might tend to look down on you, scorn you or despise your plan. This is because they will feel you don’t have the capacity to execute your plans but don’t be deterred; keep your dreams alive.

             Investors and Venture Capitalists

The problem with going this route is that these fund providers are mean and tough. And the chances of you been kicked out are high. Also, they often don’t invest in yet to be established business, they will demand a higher stake in your business and they will want their money back faster. So for someone wanting to start a business with just a plan and no money; investors and VCs are often the wrong choice because they know that plans are often beautiful to behold on paper. But its execution is not a piece of cake.

         Banks

Commercial banks don’t provide equity or capital, except on special cases; they only provide loans. And for your business to qualify for a loan, you will have to pass through stringent measure. Now if you are a start up entrepreneur with nothing but a business plan, then forget about getting funds from the banks.

Now since the three options above proves to be a herculean task with very high odds, what’s the next option. Well, just read on.

             How to Creatively Finance your Small Business Start up

Most entrepreneurs started business without external financing; meaning they financed themselves. The harsh truth about raising capital is that no one believes in your dream; no one will ever understand your plans like you do and no one can grasp your vision like you. So that means you are on your own.

Secondly, only few investors will be willing to invest in a yet to be established business and they will only do it if the entrepreneur behind the proposed business is credible and has a proven track record. Since you are a new entrepreneur with no track record and you are just starting your first business; that means you are on your own.

Now that the odds are high and the chances of raising capital from external sources or investors is slim. What do you do?

                “When no one wants to invest in your business idea; when no one wants to fund your business plan, don’t go hitting your head against the wall. Don’t sit on your plan; instead, finance yourself. Do anything you can to raise the minimum amount needed and start small. Keep providing your own capital and keep moving until you breakthrough.” – Ajaero Tony Martins

The answer above is simple but tough to implement. Fortunately, self financing is not impossible. In fact, that was how most successful entrepreneurs kick started their business. Richard Branson, Steve Jobs, Larry Ellison, Jeff Bezos, Robert Kiyosaki, etc all financed their business themselves before they were able to attract outside investments.

The point I am trying to stress here is that you don’t need the exact amount on your business plan to start your business. If you are waiting to raise the exact amount on your business plan, you might wait forever and still end up dying with your dreams. What I will advice is that you calculate the minimum capital you can kick off with; cross check your plan for things you can do without or get for free and get started.

I did not start my business with millions of dollars in capital; and even up to this moment, I still self finance my new businesses. Another important point to note is that none of the business I started was sufficiently funded; they were always underfunded and I occasionally run short of cash but I always find a way to survive. Now how was I able to pull through? How was I able to start my business without outside support and how can you do the same. You will find the answer you seek below.

              Assess your personal traits

Do you really possess what it takes to be an entrepreneur? Starting a business is not all about the money to be made or the capital to be raised; it has to do with the mindset. What I am trying to say in essence is that your mindset, your perception is more important than money. To successfully raise money and start a business, you must be tough as a nail. You must develop a tough skin and learn how to take disappointment without losing your enthusiasm.

Nobody is going to give you his/her hard earned money on a platter of gold and in fact, nobody really cares about you or your plans so you must be prepared mentally to weather the storm. Your will to succeed must be so strong that it can’t be deterred by negativity, criticism and disappointments. Your will to succeed is more important than money especially when you are starting without money. Life is not a bed of roses.

       Enter for entrepreneurship contests/competitions

Just like I said earlier, life is not a bed of roses. Your quest to raise capital might require you to fight or compete for it. If no one will lend you money, then you can as well get the attention and fund you need by fighting for it. I prefer to use the word “fighting” rather than “competing” because the no one is going to give you money on a plate of gold; no one is going to spoon feed you. Like I stated earlier, you are on your own, so you have to fight for yourself.

Look around you and see if you can find an entrepreneurship competition or even any competition you think you are competent enough to compete in. Participate in entrepreneurship contests; if you have a skill or talent, see if there’s a competition locally or nationally that require such talent and join. After all, there’s no formal rule or pattern for raising capital. Anything goes.

        What can you do to raise money?

No one is willing to invest with you, so what do you do to raise money? My answer is that you can do anything legit to raise the kick off capital you need. Anything at all; as long as it gets you the needed capital and you are not breaking the law or hurting someone. If you have a skill or talent, then use it to make money. For instance, if you are skilled in bookkeeping, web design, writing, speaking, playing football or whatsoever; then use it to make the capital.

Now what if you don’t have a skill or talent? Then you should get a job and work on your business part time. Most people, even my close friends never knew that I did some menial jobs just to raise capital to start my first business. I worked in a biscuit manufacturing plant, a thread milling factory and a plastic manufacturing factory. I have worked in sachet water manufacturing firm; bagging and stock piling bags of sachet waters. I have been kicked out of several casual jobs because I was either lazy or couldn’t meet up with the needed working speed or capacity. Yet, I never gave up. I bounced from job to job until I got the capital I need.

The question now is: are you willing to work hard today, to live a better life tomorrow? Are you willing to sweat it out today, so that you can be an entrepreneur or an employer of labour tomorrow? Now I am not asking you to follow my steps. No. I think there are easier ways to work to raise capital but you will have to find yours.

               What can you sell to raise capital?

Do you have any tangible asset you can sell to raise money? That is a question you must answer if you are really serious about starting a business. I have seen entrepreneurs who sold off their belongings and kick started their business. The truth is that sometimes, you just have to make sacrifices now for a better tomorrow. Anything you think you can sell now to raise money, sell it.

In the process of building my first business, I invested everything I’ve got in my business and I ran out of cash. What did I do? I rented out a space in my room to a friend for two years; just to raise money to keep food on the table, while struggling to get my business. I also had to maintain a low profile those two years just to keep my personal expenses low. It was tough and un-conducive but I did it. Why? I did it because I had in my mind; a picture of the future. I knew where I was going and what I wanted in life but unfortunately, nobody shared this ambition with me. I got to where I am today all alone without outside support or investors. I even had to give up my education just to pursue my dream and it wasn’t really a funny stuff; in fact, it made me cry back then.

          “Where the mind is willing, it will find a thousand ways. Where the mind is unwilling, it will find a thousand excuses.” – Anonymous

In conclusion, I want to re-state the fact that there is no formal rule, protocol or pathway to raising capital. You just have to do it anyhow. If that business is important to you; if your dream to become an entrepreneur is strong, then you just have to find a way. Remember, your will to succeed is more important than money.

How to Raise Startup Seed Capital from Family and Friends

Raising capital is one of the major business challenges faced by entrepreneurs; especially when it comes to starting a business from scratch. It’s much easier to raise capital as an established entrepreneur than to raise capital as a first time startup entrepreneur.

Since the need for capital is a business challenge that stress entrepreneurs the most; I am commencing a series dedicated to helping you raise seed capital for your new business startup. This series will address the issue and challenges of raising capital and today; I will be tackling the challenge of raising seed capital from family and friends because one of the very first places entrepreneurs turn to when seeking startup capital is their family and friends.

The importance of family and friends in the life of an entrepreneur can never be over emphasized; so this article will be dedicated to teaching you how to leverage your family and friends to launch your business successfully.

                Now how do you leverage your family and friends to successfully start a business?

                How do you raise seed capital from your family and friends?

Well, I will advice you read on because I am going to tear this subject apart. This year, my team and I decided to directly attack the issues pressing entrepreneurs the most and our starting point will be the issue of raising capital. There are many creative ways to raise seed capital for your startup business venture but I want to take it from the grass root which is raising capital from family and friends.

Raising startup seed capital from family and friends happens to be one of the easiest avenues of raising capital that entrepreneurs can exploit but if wrongly done; you can get your fingers burnt and the process may even end up destroying the existing relationship you have with your family and friends.

Raising seed capital from family and friends is quite easy if you do things the right way. After all, most successful entrepreneurs and drop out billionaires started business with capital sourced from family and friends. Example of successful entrepreneurs that raised startup capital from family and friends include Richard Branson, Bill Gates, Berry Gordy, John Johnson, Ingvar Kamprad, Orji Uzor Kalu, Aliko Dangote, Li Ka Shing, Howard Hughes, etc.

Now if these famous entrepreneurs can successfully start a business from scratch with seed capital raised from family and friends; I don’t see any reason why you can’t do it. Now how do you raise seed capital from family and friends?

                How to Raise Startup Seed Capital from Family and Friends

1.            Be in the Right Mindset

If you are not in the right mindset, forget about trying to raise seed capital from your family and friends. Now why do I emphasize you be in the right mindset before trying to raise capital from your family and friends? You need to be in the right mindset because you will still go through the entrepreneurial process of raising capital. The fact that you are trying to source capital from family and friends doesn’t eliminate the odds of disappointment.

What if your trusted friend turns you down? What if your most loved one says no to your business plan? How will you feel if you get laughed at by your loved ones? The answer to these questions is the reason I emphasize you be in the right mindset. Before trying to raise capital from family and friends; you must be prepared to face rejection. In fact, expect disappointment from even the person you love most. The reason I emphasize you be in the right mindset is because disappointment from your family and friends can strain the good relationship shared.

I think I have had a personal experience with respect to this case. I remember vividly when I caught the entrepreneurial bug some years ago and began nursing the desire of running my own business. I had some excellent business ideas which I was excited about and my determination to scale through kept my head buried in books while my mates were partying. I even attended seminars to sharpen my entrepreneurial skills and learn how to build a business.

With a feeling of confidence and excitement about starting a business, I shared my business plan with my parents. But instead of getting a word of encouragement; all I got was a hard stare from my dad and a detailed explanation of how incompetent i am with respect to starting a business. My dad told me to my face that I was still a kid and advised me to face my studies.

To be sincere with you, I was very disappointed. In fact, I was annoyed with my dad back then. After all my effort and time spent developing a business idea, drawing up a business plan and honing my business skills; my dad had the effrontery to call me a (incompetent) kid despite the fact that I had spent reasonable time running his own business. I felt like giving my dad a punch in the face for challenging my competence; and if not for the encouraging words from my mom, I don’t know what would have become of the sweet relationship between me and my dad.

As I lay on my bed and recalled this particular experience; it occurred to me that young entrepreneurs all over the world may also be going through this same experience and that was why I wrote this article. No matter where you are sourcing your startup capital from; always respect the odds that you can get turned down. Don’t take rejection personal; it’s the norm in the business world.

2.            Build up your Credibility

Now since the odds of raising seed capital for your startup company remains the same despite the source you are exploiting; then how do you increase your chances of getting the financial support you need? The answer to that question is “credibility.”

What are you known for in your family? What’s your level of relationship with family and friends? Can you be trusted? How well did your past dealings with family and friends go? Have you handled any project on behalf of the family? How do you live your life? Are you an asset to the family or a liability? Are there any habits that could be a hindrance to your aspirations?

These are the questions you must answer before trying to raise capital from family and friends. Nobody wants to give money to a scumbag or an incompetent friend or relative and neither would I. I once told my immediate younger brother that I would never invest a dime in any of his projects if he doesn’t gain a stronger control over his life and finances. I made this statement to help my brother have a greater sense of responsibility.

If you haven’t got control over your life and the way you spend money; then it’s high time you change and reconsider you life’s pattern because a single bad habit can reduce your chances of raising money from family and friends. Remember that these two groups know you to the core; they know your strengths and weaknesses. In fact, they know personal things about you that even Venture capitalists and angel investors may never find out.

3.            Have a Good Plan

Don’t walk up to your members of your family or friends and try to raise money without a good business plan. No matter how much they love you, they will still want to know what you need the money for. Even if you are not going to share the intricacies of your business plan with them; at least they deserve to get an overview. Understand your plans like back of your hands especially when you are coming from a family of intellects or trying to raise capital from learned friends. If your plan sounds too shallow or incomprehensive; you may be denied the financial support you need. But before sharing your business plan with your family and friend; make sure the step one and two above are sufficiently taken care of.

4.            Have a Good Story to Tell

Do you have a good story backing your business plan and intentions? If your answer is no; then you better reconsider your approach because your proposal and request may be thrown back at you. The fact that you are trying to raise capital from family and friends don’t mean you should take them for granted. Threat them professionally with a touch of informality and back your business plan with a good story.

How did you develop your business idea? What are your chances of success? How viable is your idea? Try sharing the answers to these questions with your family and friends because it has been proven that humans listen to stories more than anything else. So share a story worth telling about your business plan.

5.            Select your Targets

A good rule of thumb when raising seed capital from family and friends is this; “don’t go telling every dick and harry in your family about your plans.” Select a few prospects among your family and friends that have the potential to provide the capital you need and prepare a pitch tailored to their life pattern.

For instance, when I was trying to pitch my dad to invest in my business idea; I prepared myself properly because my dad was a strict individual who knows the fundamental intricacies of business. He doesn’t believe in throwing money around; and when it comes to money issues, he is strict about it with his children.

So knowing my dad was a no-nonsense person; I had to be straight and clear while pitching my ideas to him. Though, I still got turned down; I left his presence with some lessons about the challenges involved in raising capital.

The lesson I am trying to extract here is this; “the way you pitch a family member of high intellect will be very different from the one used to pitch a friend who is an entrepreneur; or a family member who is stingy when it comes to money.” Different pitch for different people and situations; never use the same words for people with different core values. What may attract a professional investor may turn off an scholar.

6.            Sell Yourself

The next key to successfully raising seed capital from family and friends is your ability to sell yourself. Why should your family and friends give you their hard earned money? How are they sure the money will be used judiciously? How are they sure you are not trying to con them? You have failed on a previous project, why should they trust you on this one?

This is where selling yourself comes in. This is where you sell your potentials and competence to members of your family and friends; this is where you prove that you know your onions. If you successfully carry out step one to five and you miss it here; all your effort will be in vain. You will never get the needed capital.

7.            Ask for the Money

If step one to six goes successfully; then you have to take the next action step which is asking for the money. Before asking for the money; you must be definite on your plans, you must know how much you need and the terms involved. Nothing annoys me more than an entrepreneur pitching me with his business plan and when I ask how much in capital he wants to raise; he or she becomes speechless or uncertain. So when raising capital from family and friends; it’s advisable you know your business plan like the palm of your hands, sell yourself excellently and ask for the money.

As a final note, these are my seven strategic action step plan to raising seed capital from family and friends. Remember, the key secret to raising startup capital from any source is creativity; thorough understanding of the business fundamentals and a good presentation. Once these three keys are locked in synergy with the seven action steps listed above; you will be able to raise any amount of startup capital you need.

VC Funding: How to Raise Capital from Venture Capitalists

Have you tried to raise capital from Venture capitalists and failed? Do you want to learn the secrets to successfully raising start up capital from VCs? Are you trying to raise money for business expansion? Are you willing to give VC funding option a trial? If your answer to any of the questions above is yes; then read on as I expose the untold secret to raising venture capital from VCs.

Raising capital is one of the major business challenges faced by entrepreneurs; especially when it comes to starting a business from scratch. It’s much easier to raise capital as an established entrepreneur than to raise capital as a first time startup entrepreneur. And of all the avenues available to raise startup capital; VC funding is probably the toughest.

Since the need for capital is a business challenge that stress entrepreneurs the most; I recently commenced a series dedicated to helping you raise seed capital for your new business startup. I recently wrote an article addressing the challenges of raising capital from family and friends.

Today; I will be tackling one of the toughest avenue for raising capital; and that avenue is “Venture Capital funding.” Entrepreneurs dread the option of raising capital from Venture capitalists because of the tough process involved. VCs as they are better known cut a tough deal. They are seasoned investors that know the intricacies of startup investing and running a business. Not all businesses qualify to pass through the scrutiny of Venture capitalists; and of the few that pass the initial test, only fewer will get the start up funds.

                Now how do you leverage the experience and resources of VCs to successfully start a business?

                How do you raise startup capital from Venture capitalists?

VCs are tough and get to see hundreds of business plans everyday. So how do you ensure your business plan gets noticed? How do you get called up to defend your business plan? How do you stand the fire of Venture capitalists? Well, you are going to find out.

Before taking your business idea or business plan to a VC; please be sure that your business idea or opportunity has strong profit potential because VCs are purely investors risking their capital for a profit. It’s also advisable that the potential or expected return on investment should be within the range of 35% – 45% per annum; depending on the terms and conditions of the VC.

                How to Raise Startup Capital from Venture Capitalists

1.            Be in the Right Mindset

If you are not in the right mindset, forget about trying to raise capital from VCs. Now why do I emphasize you be in the right mindset before trying to raise capital from Venture capitalists? I emphasize that you be in the right mindset because VCs are tough and their rules are stringent. They are professional investors who have kicked the butts of so many entrepreneurs with solid business ideas; so why the heck should they give a damn about your business proposal.

Just as I said earlier, VCs are tough. They have no time for story telling and they are very good at airing their views bluntly; which sometimes hurt the emotions of the entrepreneur seeking capital. So before trying to raise capital from VCs; you must be prepared to face rejection and expect some harsh words. You may end up been lambasted by the VCs but don’t take the rejection personal; it’s the norm in the business world. VCs just want you to feel the reality of business; they want you to develop tough skin because their harsh response to you will be nothing compared to what your potential competitors will do to your business.

2.            Are you prepared to give up control?

                “I’d rather own 10 percent of a billion dollar company than 100 percent of a million dollar company.” – J. Paul Getty

If your answer to the above question is no; then forget about raising start up capital from Venture capitalist. Venture capitalist cut a tough deal; they are private equity investors so they are definitely going to take a stake in your business. Venture capitalists usually demand a stake of 25% – 60% depending on the situation at hand or their terms and conditions. Most entrepreneurs are not comfortable giving up control or opening up the ownership structure of their company. So it’s advisable you ponder over the issue of control carefully before making up your mind on the source of capital to pursue.

3.            Build up your Credibility

Now since the odds of raising venture capital for your start up company increases when going the “VC funding” way; how do you increase your chances of getting the capital you need since VCs are tougher with their rules? The answer to that question is “credibility.”

Have you run a business in the past? What experience do you have with respect to raising capital? How do you handle your personal finances? Have you had any transaction or deal with a notable business personality before? Have you built a successful business before?

The above are real questions that VCs throw at startup entrepreneurs seeking venture capital. One of my mentors “Robert Kiyosaki” said that “the more successful you become; the easier it is to raise capital and the easier the process becomes.” I think he said the truth in its entirety.

Venture capitalists want to see a proven track record; they want to see experience and above all; they want to see credibility and competence in the entrepreneur. If you lack these characteristics as an entrepreneur; never knock on the door of VCs.

3.            Find a business mentor

                “If you want to successfully go up the mountain; ask the person who has gone it to and fro.” – Zen Master

If you want to become good at the game of raising capital from Venture capitalists; then find a business mentor that has successfully done it several times. Or better still, you can seek to be mentored by a VC. Your chosen business coach may be retired or still active in the game but either ways; you will learn tremendously and your wealth of experience will be immeasurable.

4.            Who is on your team?

                “Money always follow management.” – Anonymous

The problem with most startup entrepreneurs that fail to raise capital for their business ideas is that they are trying to raise capital as an individual. Business is a team sport; so also is investing. How can you get the attention of a VC when those competing with you for the startup capital have smart teams on their side?

Having a business team is crucial to successfully raising venture capital from VCs. Who on your team has built a company and taken it public? Who on your team is experienced in business management? Who is on your team? These are questions VCs usually ask entrepreneurs seeking capital.

Let me tell you a secret to getting the fund from Venture capitalists. VCs love name dropping; it gets them excited. They want to know who is also investing in your deal. If you have a competent management team or you secured an angel investment from a reputable investor; it will increase your chance of getting the VC funds.

A business mentor of mine once said that venture capitalists prefer an average product with an excellent business team than an excellent product with an average business team. If you should consider this statement; you will come to acknowledge that it’s the truth in its entirety.

A business team is vital to the process of raising capital for your business; in fact, it increases your chances of securing the capital. Show me an entrepreneur that raised billions of dollars in capital and I will show you an entrepreneur backed by a strong business management team. Just like said in the investment world; money always follow management.

5.            Have a Good Plan

Business plans don’t impress VCs. Do you want to know why? Business plans don’t get them excited because they come across tons of business ideas and plans everyday. It’s their business; it’s what they do to stay in the game. VCs scrutinize business plans and ideas day in day out so what makes your plan stand out?

The worst mistake you will commit is to approach a Venture capitalist with a pre-made business plan or a business plan written by a consultant. VCs are savvy in the game of startup funding so they can tell if your business plan is worth the onions in less than three minutes.  I am not saying that a business plan written by a consultant is useless; all I am saying is that you should be involved with the process of the business planning.

Never take your business plan to a VC unprepared. Make sure you know your business idea and plan like the palm of your hand. Make sure the budgets and financial issues are comprehensive and your numbers do not contradict each other. Above all; keep your business plan simple and comprehensive using more of tables, graphics and charts.

To further increase your chances of raising capital from VCs, I will suggest you give your business plan to a VC friend or a savvy investor for scrutiny because he/she might pick out some flaws and this will save your neck. I am saying this because VCs are strict with their time and sometimes, it’s difficult to get the attention of a VC twice. You just have one chance to make it or break it and if you misuse such opportunity; you may never get it again.

6.            Get Social

One of the best ways of finding a VC is by getting social. Sometimes in the business world; it’s not how much you have or what you know that matters. It’s who you know. Venture capitalists are social networkers. Are you surprised? Well, don’t be.

To schedule or pitch a VC for a chance to sell him/her on your business plan; you have to meet them where they hang out. Now where do VCs hang out? You can catch them at business parties, annual general meetings, entrepreneurial summits and conferences, etc.

Getting social will enable you meet and rub minds with other entrepreneurs who are also seeking startup capital. Getting social might even earn you a referral to a Venture capitalist. You can never tell what’s out there until you move.

7.            Have a Good Story to Tell

Do you have a good story backing your business plan and intentions? If your answer is no; then you better reconsider your approach because your proposal and request may be thrown back at you. Those experienced in the game of raising capital knows that the way you pitch angel investors is different from the way you pitch Venture capitalists.

You are trying to achieve a single aim; which is to raise capital but your approach will be different because your sources are different. VCs are more impatient than angels; they are strict with their time so don’t bore them with unnecessary story lines. Keep your message simple; yet detailed.

If the Venture capitalist you are pitching is more interested in the profit potential of the business; focus on that. If the VC is more interested in the management structure or those in the deal; provide them information on that. Above all, focus on what the Venture capitalists want to know; not what you feel they should know.

8.            Select your Targets

A good rule of thumb when raising startup capital from VCs is this; “don’t go knocking on every VC’s door with your plan.” It will just be a waste of time and effort. There are a lot of things to put into consideration before selecting potential Venture capitalists to approach.

Some VCs prefer to invest in established businesses while others prefer to invest in young startups. Some Venture capitalists prefer to invest in firms to the tune of $100million and above while others are comfortable investing $1million – $10million. Venture capitalists are also specialized; with respect to their choice industry of investment.

So before approaching a VC, make sure you understand the VC’s areas of interest. Some Venture capitalists focus on investing in technology startups; some in green companies and the rest biotech or industrial companies. It is useless approaching a technology focused VC with a music based business plan because you will never arouse the interest of such VC.

9.            Sell Yourself

The next key to successfully raising startup capital from Venture capitalists is your ability to sell yourself. Why should your VCs give you their hard earned money? How are they sure the money will be used judiciously? How can you prove your competence? You must have had a business failure in the past, why should they trust you on this one?

This is where selling yourself comes in. This is where you sell your potentials and competence to the Venture capitalists; this is where you prove that you know your onions. If you successfully carry out step one to five and you miss it here; all your effort will be in vain. You will never get the needed capital.

                Why you must Develop your Sales Skills and Learn How to Sell

Getting an opportunity to pitch a Venture capitalist is like being given a gun loaded with just a bullet. It’s either you hit or miss and most often; there’s no second chance. So you got to adequately prepare yourself. Even if it means getting some training or coaching; do it.

Warren Buffett once admitted that he took a Dale Carnegie’s public speaking course and that has helped him in his relationship with associates, employees and investors. Sometimes, your personal skills may turn out to be an edge in the process of raising capital so it’s advisable you develop it.

10.          Ask for the Money

If step one to six goes successfully; then you have to take the next action step which is asking for the money. Before asking for the money; you must be definite on your plans, you must know how much you need and the terms involved. Nothing annoys me more than an entrepreneur pitching me with his business plan and when I ask how much in capital he wants to raise; he or she becomes speechless or uncertain.

Before trying to raise startup capital; whether from a venture capitalist or angel investor, make sure you know your aim and objectives. Indecisiveness is one of the silent reasons why most start up entrepreneurs don’t get the venture capital. So when raising capital from Venture capitalists; it’s advisable you know your business plan like the palm of your hands, be precise with your numbers, sell yourself excellently and ask for the money.

As a final note, these are my ten strategic action step plan to successfully raising seed capital from Venture capitalists. Remember, the key secret to raising startup capital from any source is creativity; thorough understanding of the business fundamentals and a good presentation. Once these three keys are locked in synergy with the ten action steps listed above; you will be able to raise any amount of startup capital you need.

How to Raise Capital for Small Business

Do you know how how to raise capital for small business? One of the primary duties of an entrepreneur is to continuously raise capital for his or her business.

But what happens when that business is still in its startup stage? How will an entrepreneur raise capital for a new small business startup? I intend to use this article to reveal the fundamentals of raising capital for your business.

“Thought, not money is the real business capital” – Harvey Firestone.

If you are a first time entrepreneur seeking to raise capital for your small business startup, then read on as i share with you 12 avenues you can ply to raise capital for your small business startup. If one fails to yield result, you can try another.

Before proceeding to raise capital for your business, i want to clearly state that there are certain necessities you need to have at hand and one of such necessities is a business plan.

How to Raise Capital for Small Business

1.   Family Members

One of the first places entrepreneurs go when trying to raise capital for their small business startup is their family members. Family members will give you money blindly simply because of the love and bond you share with them. Though capital from family members may not be enough to see your business stand firmly, it’s going to give you a push and boost your morale to forge ahead.

2.    Friends

The next avenue you can ply to raise capital for your small business startup is to approach your friends. One thing with seeking capital from friends is that they (your friends) might want to come on board as partners. One more thing, your credibility will be a determining factor to your success with raising capital from friends.

3.   Angels

Angels are rich individuals that have resolved to use a portion of their wealth to support young entrepreneurs and small business startups. All you have to do is fit into the criterion set by the angel investor and you will see your startup funded, provided you have a bankable business idea backed by a strong plan.

4.   Entrepreneurship Supporting Banks and Institutions

Your business startup can also be provided with capital by entrepreneurship supporting banks or institution. Some banks and institutions usually set apart funds to support entrepreneurship. Their terms are usually flexible; these institutions or banks usually request a stake in the new venture and whereby a stake is not requested, they may grant the small business startup a longer repay period.

5.   Private Investors

The next avenue you can ply to raise capital for your small business startup is to approach private investors. These private investors are individuals that invest in business ventures with the hope of receiving a massive return on investment. They are usually rich and experienced individuals when it comes to business and investing.

Before approaching private investors; you must make sure your business idea is bankable and backed by a strong business plan. You must also make sure you are capable of defending the proposed budgets stated in your business plan before these investors.

6.   NGOs and Not For Profit Organizations

NGOs and Not for Profit Organizations that support entrepreneurship may not directly provide capital for your small business startup but they can help link you up with private investors and institutions. Some of these NGOs have strong working relationships with the elites of the society and big institutions. You can leverage on this relation to raise the capital you require.

How to Raise Capital for Small Business

7.   Venture Capitalists

Approaching a Venture Capitalist is one option you might not want to consider because VCs are tough and strict on their funding terms. Only few businesses ever pass the test of VCs because of their tight rules.

If you pass their requirements, VCs will provide the capital you need in return for equity in the startup. They will also bring their experience on board to make sure your business survives and grow; so they can get back their investment.

8.   Banks Loans

You can obtain loans from commercial banks to kick start your business but you must deposit tangible collateral of value. Obtaining loans from banks is one of the less applied tactics to raising capital employed by entrepreneurs because of the requirements and high interest rates.

9.   Entrepreneurial Networks and Associations

Just like NGOs, entrepreneurial networks and associations don’t provide direct capital but may link you up with investors and entrepreneurs that might provide capital and bring their expertise on board. Examples of such network and association are VentureHacks.com and SBA.

10.   Customers

You can raise capital from customers by showing them a prototype of the product and collecting payment upfront before supplying. This tactics may not see your business explode but it might help it get off the ground. Steve Jobs of Apple Computers kick started his business this way by securing a large order from a customer with payment upfront.

11.   Suppliers

Just as the case of raising capital from customers, you can also apply the same tactics on suppliers by seeking supply in advance.

12.    Investment Bankers

When all avenues have been exhausted, you can approach investment bankers to provide you with the capital you need. They have the capacity to raise capital for you from the general public. But for this approach to be successful, you must be willing to give up ownership and sell some stakes to the public through an IPO.

As a side note, you can also raise capital for your small business by undergoing Reverse Merger. Reverse Merger is simply the process of merging your business with a publicly quoted company.

In conclusion, i want to send a message across that raising capital should not be a night mere as touted by some. Raising capital is all about creativity. Once you have the right plan, you will surely find the money no matter how long it takes. Disappointments are bound to surface but you must refuse to be discouraged by these setbacks. At this point i leave you with these quotes:

“The size of your success is measured by the strength of your desire, the size of your dream and how you handle disappointment along the way.” Rich Dad

Going Public: Advantages and Disadvantages of Doing Business as a Public Corporation

What are the advantages and disadvantages of doing business as a public corporation? what are the pros and cons of taking a company public? Well, i suggest you read on to find out.

Of what use is this article when I have no intention of taking a company public? This might be the thought running through your mind as you glance through the headline. Well, I don’t know if taking a company public interests you but I do know that it is the dream of every successful entrepreneur to see his/her company quoted on the stock exchange.

“If you are acquired, a company validates you. If you go public, the market, the world validates you.” – Fortune Magazine

Sometime in the future, I think I am going to do a piece on how to build a successful business from scratch and take it public via an IPO. I bet it’s going to be an interesting and engaging subject. In the mean time, I want you to take a look at most of the successful entrepreneurs; take a look at the drop out billionaires of this world and you notice that 90% of these entrepreneurs have their companies listed on the stock market.

Now why do these entrepreneurs go public? What do I stand to gain from taking a company public? What are the advantages and disadvantages of doing business as a public corporation? If you desire answer to any of these questions, please read on.

In this article, I am going to explain in detail everything you need to know about taking a company public. I am going to highlight the advantages and disadvantages of doing business as a public corporation. If you are still willing to learn, then let’s get the ball rolling.

   3 Reasons why entrepreneurs take a company public

Just as I said earlier, almost all successful entrepreneurs have one or more companies listed on the stock exchange; from Bill Gates, Anita Roddick, Warren Buffett, Larry Ellison to Steve Jobs, Sam Walton, Ingvar Kamprad and Aliko Dangote; the richest black man in the world. Now why did these men and women go public? You will find the answer below.

1.            To Raise Money for Growth and Expansion

“I think you might see us growing much deeper into banking. You might see us acquiring companies in the banking area. You might see us acquiring companies in the retail area. I think you might see us acquiring companies in the telecommunications. I think you will see us getting stronger in business intelligence.” – Larry Ellison

This is probably the fundamental reason why successful entrepreneurs take a company public. If a business has grown and attained a profitable status, the business owner may take the company public to raise money for expansion into other potential markets.  Take a look at how Larry Ellison strategically expanded Oracle Corporation by means of acquisition; buying up 57 companies within five years and you will understand the power attached to going public.

“In order to grow at this pace, there’ll have to be a couple of acquisitions along the way. The tricky thing is to grow at this rate and maintain a 40 percent operating margin.” – Larry Ellison

2.            As an Exit Strategy

“Always start at the end before you begin. Professional investors always have an exit strategy before they invest. Knowing your exit strategy is an important investment fundamental.” – Rich Dad

In the world of business and investing, your exit is more important than your entry. In the business plan of every smart entrepreneur, an exit strategy is always included because they know that whatsoever has a beginning surely has an end. As an entrepreneur, once your business goal is achieve, you should know it is time to move on to bigger challenges.

“Once you have made it, you will understand that any business is limited in the challenges it offers. You will want and need other games to play, so you will look for other ventures to hold your interest.” – J. Paul Getty

Taking a company public is a smart exit strategy for successful entrepreneurs. Successful entrepreneurs know that once their goal is achieved in a business, it is time to move on. They know that the journey started years ago is almost complete and it is time to pass the baton.  So what they do is take the company public and start a new business or retire. Taking a company public gives you the option to sell your business while still maintaining control over it after the sale.

“In order to be a player on the fast track, you will need to have a plan on how to gain more and more control. On the fast track, it is control more than money that counts.” – Rich Dad

3.            To Relinquish Hold on the Company

An entrepreneur may go public to take the administrative role of the business off his neck while still maintaining passive control of the business. What I mean is this; if your business has grown big, you can go public to hands off from the day to day running of the business while still maintaining control. In essence, you have given up administrative role to assume the role of a watchdog.

Now that I have explained the reason why successful entrepreneurs take their company public; are you still interested in building a business to take public? If yes, then below are seven advantages of taking a company public.

  7 Advantages of doing business as a public corporation

Though only about 5 – 10% of all businesses started usually go public, I felt compelled to write on the process of taking a company public because you might someday decide to take your company public. Below are seven advantages of taking a company public and doing business as a public corporation.

1.            Access to unlimited funds

The first advantage of forming a public corporation is this; your company will have access to unlimited funds. This is because a public company has the ability to raise an unlimited amount of capital from small investors and big businesses.

“We have to still develop the IKEA group. We need many billions of Swiss francs to take on China or Russia.” – Ingvar Kamprad

2.            Being quoted on the stock exchange

By taking your company public, your company shares can now be traded on the floor of the stock exchange thereby giving both small and big investors access to your company.

3.            Investor’s confidence

Investors are more comfortable investing in public companies than private companies due to the professionalism of the management in public corporations, the strict rules of the regulatory bodies and the publicly published financial statements.

4.            Reduced risk

Public corporations have the right to sell shares to the public and the shareholders have limited liability. Therefore, the risk is spread over a large number of people.

5.            Fast growth pace

Taking your company public will enable you grow and expand your business with ease. Since you have access to unlimited funds, expansion will be a piece of cake.

“If GE’s strategy of investment in China is wrong, it represents a loss of a billion dollars, perhaps a couple of a billion dollars. If it’s right, it’s the future of this company for the next century.” – Jack Welch

“I think you might see us growing much deeper into banking. You might see us acquiring companies in the banking area. You might see us acquiring companies in the retail area. I think you might see us acquiring companies in the telecommunications. I think you will see us getting stronger in business intelligence.” – Larry Ellison

6.            Public companies are known for delegation of managerial functions. When you go public, you will have enough working capital to employ the best in terms of experience, professionalism and skill.

“The competition to hire the best will increase in the years ahead. Companies that give extra flexibility to their employees will have the edge in this area.” – Bill Gates

7.            Taking a company public is like selling your business without giving up control or ownership of the business. It is like giving the public a chance to buy into your business and share in the profits while still maintaining control.

In the world of business and investing, there are two sides to every deal; and professional investors and entrepreneurs know this. Whatever has a bright side equally has a corresponding dark side. Before deciding to take a company public; before deciding to do business as a public corporation; it is advisable you weigh the pros and cons.

Since I have provided you with the advantages of doing business as a public corporation, I will also share with you the disadvantages of doing business as a public corporation.  Below are seven disadvantages of taking a company public.

7 Disadvantages of Doing Business as a Public Corporation

1.            The management structure in a public corporation is usually decentralized so therefore, the managers are in most cases not the business owners. Since they are managers, they may not be motivated towards the company’s goal and vision as the entrepreneur that created the business.

“Management is doing things right, leadership is doing the right things.” – Peter F. Drucker

While the entrepreneur may be driven by the desire to fill a need and build a successful business, the managers or corporate leaders may be driven by bonuses, incentives, job titles, promotions and salary; not the entrepreneur’s vision.

2.            Taking a company public is very expensive due to legal fees, meeting up with the demand of government agencies and regulatory bodies and also the cost of undertaking an IPO (Initial Public Offer) adds to the burden. The IPO cost may run into hundreds of millions of US dollars.

3.            When you take your company public, you will have to serve three bodies. You will serve your customers, government agencies or regulatory bodies and the investors. This might be too cumbersome or stressful for some entrepreneurs to handle.

4.            Public Corporations are subjected to more legal restrictions than other type of entities.

5.            When you take a company public, your company becomes subjected to stiffer accounting rules and principles; thereby reducing your flexibility.

“Unfortunately, we are not a public company. We are a private group of companies and I can do what I want.” – Richard Branson

6.            When you form a public corporation, your business affairs and financial statements can’t be kept secret any longer. It must be published to the public at large.

7.            Public corporations are subjected to heavy corporate tax. They pay both federal and state tax. Public corporations are also subjected to double taxation. They are taxed based on their earnings and the shareholders are taxed based on their dividend.

As an individual or small business owner, you can simply find a tax calculator online and prepare your own return, but as a public corporation, you will almost certainly want to retain the services of a certified tax professional.

“A corporation’s primary goal is to make money. Government’s primary role is to take a big chunk of that money and give to others.” – Larry Ellison

As a last note, I want you to also know that public corporations face severe penalties if they go wrong or misinform the public; so professionalism and transparency are the rules of the game. Look at what happen to Oracle Corporation when they overstated their earnings in the early 90’s. Consider the case of Martha Stewart, Arthur Anderson, WorldCom and Enron; you will come to understand the harsh penalties meted out to erring public corporations.

However, if you are daring, you may still decide to take your company public; the ball rests with you the entrepreneur. Don’t shy away from undertaking the entrepreneurial process of going public because of the challenges involved. Business challenges are part of the entrepreneurial process. Just as J. Paul Getty said:

“Without the element of uncertainty, the bringing off of even, the greatest business triumph would be dull, routine and eminently unsatisfying.” – J. Paul Getty