Avoid Investment Pitfalls in Small Business Start-ups

The start-up endeavor is a lofty goal and one fraught with financial challenges. It is in part due to the nature of a start-up – rarely does the would-be entrepreneur have the business experience or collateral that makes it possible to secure bank loans. Investors first want to know there is at least at least a fair—if not very good — probability of a positive return on their investment. This is true regardless of whom the investors might be—whether banks, venture capital firms, family, friends or angel investors.

In order to increase your chances of success there are mistake you should avoid. Don’t let slip-ups keep you from obtaining start-up funds or maintaining a steady cash flow. Steer clear of the following potential deal breakers.

One basic rule of thumb is to have a business plan that helps you stand out from the crowd, so it’s important to illustrate what makes your business unique. Having an incomplete business plan is almost as bad as having no business plan at all! You are not going to impress your potential investors if it lacks the necessary details outlining your short-term and long-term intentions. Essential elements of a good business plan may include:

o Executive Summary
o Company Description
o Market Analysis
o Organization & Management
o Service or Product Line
o Marketing & Sales
o Funding Request
o Financial Projections
o Appendix (optional)

The U.S. Small Business Administration has information on all aspects of writing a business plan and even provides sample formats.

Show that you have a team in place that has the experience and skills needed to make your next big thing successful. Recruit the best salespeople, accountants, marketers and other key personnel and outside experts available to supply professional guidance. Too many people ignore the people-power needed. Don’t leave it out of your investment generating strategy because it can be essential to finding a funding source.

When you calculate how much money you think you will need to borrow, considering doubling it to provide a cushion for hard times. Too often business owners start out underfunded and it’s a major cause for small business failure. A good rule of thumb is to calculate your needs based on a worst case scenario rather than an overly optimistic forecast.

Get legal advice and documentation to ensure the terms of your loan are spelled out in detail. Failure to do so can be a major setback. Remember that although securing financial assistance from multiple lenders many appear to be the perfect funding solution – it can complicate matters. Conflicts can arise over profit distribution and often do – in particular when borrowing from friends and family. Proceed with caution and always get legal counsel before accepting any investment capital.

About the Author:

Patty Whelan is a seasoned writer with experience producing original content in all facets of marketing communications, specializing in SEO copy. She covers a broad range of topics for varying industries and has been published in print and electronic media. Currently she concentrates on the electronic payment processing industry and small business. Read more at the Merchant Express blog.

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