10 Tips on Using an Investor to Help You Buy a Business
How will you go aboutthat matches your skills and experience? Very few people have the means to without resorting to borrowing or looking for a business investor. Financing your business is an important step towards realizing your dream of owning your own company. The first source of funding your business is, of course, your own money or savings. You cannot expect someone else to invest if you, yourself, are not willing to take the risk.
Seek potential investors through networking. Try the Chamber of Commerce and other business organizations. The Internet, too, can be a big help in seeking private wealthy individuals called “angels”. Angel investors usually invest in businesses with $1 million or less price tags.
The local banks could be another option. Federal regulations, though, are strict about banks investing in businesses. Family members and friends could also be possible investors.
Prepare to market theto an investor. Here are some “sales pitch” tips to convince an investor to come on board.
- Prepare a personal information sheet to present to investors. Include your personal and financial circumstances, work experiences, your history of business successes, and educational background among other information. Sell yourself as a capable and proven entrepreneur. Also include your personal financial circumstances or how much capital you are putting into the business.
- Convince the investor that the business has a high probability of return on investment. He has to be confident about the product or service that the business offers. Prepare a long-term plan on how the business will make money.
- Present a well-researched business plan – a roadmap describing your objectives and strategies on how to continue with the business or on how to improve it. Research the market and the competition. Emphasize the competitive advantage of the business and how you can continue this streak. Explain how you will attract new customers and do better than your competitors.
- Know how much is needed to buy the business. Have it valued by a professional appraiser or valuation expert. This can be used as proof of the value of the business. You should put up at least 20% from your own funds. It is very rare for an investor to shoulder 100% in the venture.
- Convince the investor of the stability of the business that you are buying. Explain that its products or services are needed by the public or customers and will enjoy continued patronage in the coming years. Point out how the business has generated profits and created a brand over the years.
- Have a written agreement with the investor detailing the terms of your partnership. This should spell out your respective rights and responsibilities. Ask a lawyer to draft this document. This agreement is particularly essential if your investor is a family member or a friend – it will prevent future tension in the family or on the friendship. Make sure you both clearly understand your respective roles before signing it.
- The investor who will be your future business partner should confirm, through a written document, his or her willingness to provide you with the funds needed to buy the business. A personal letter or one from his or her accountant or lawyer with the investor’s financial records will do. This commitment or confirmation letter will convince the seller that funding is available. It will also demonstrate that you are a serious buyer and not a “looker”.
- An investor usually invests in a business that he or she has prior experience in. As your partner, he or she deserves all the information you gathered about the business. He or she could provide you valuable advice based on his or her past experiences. Provide the investor, too, the contact details of the seller or the seller’s representative.
- Supply the investor with the past and present financial records of the business. Convey any information regarding the current state and prospects of the industry. Remember, it is not only his or her money you might lose but yours, too.
- Draft your revenue and profit projections. This should be realistic and doable. How will you make the business grow? Assess your competition. How can you increase your market share?
Never spend money that you still do not have in your hands. Have the signed investment agreement before spending any money. Plan the use of the capital and spend wisely.
Have you done your homework before meeting prospective investors?