Regardless of a business’s size or industry, business owners are no strangers to challenges and obstacles. One of the biggest challenges they must face and overcome is acquiring funding to expand and grow their businesses. A 2018 survey for small business credit reported that approximately 64% of businesses face financial challenges. Considering this percentage, a lack of working capital can become a huge obstacle to business growth and expansion.
Many start-ups and struggling businesses seek to source external business funding as they typically have menial revenue. But acquiring business funding is no easy feat. Most business owners tend to make similar mistakes when seeking outside financing, regardless of their size. However, you can boost your chances of success in acquiring business funds if you learn to avoid certain mistakes.
Outsourcing business funding services can also help business owners leverage professional skills and strategies to guarantee funding acquisition. Regardless, it’s essential for business owners to learn common business funding mistakes to help them increase their chances of obtaining working capital and fuel operational expansion and growth.
7 Key Funding Mistakes Businesses Must Avoid
Inexperience and over-enthusiasm can often result in huge financial blunders, so it’s important for business owners to carefully formulate a business funding plan and remain cautious in following it to the end. Committing these common business funding mistakes can hinder obtaining working capital and the completion of the project. To help your business avoid meeting the same fate, here are some vital business funding mistakes you must try to be cautious of when launching your funding campaign:
1. Failing to Set Realistic Funding Objectives
While it’s the dream of every business owner to obtain billions in their funding campaign, that type of cash flow isn’t realistic, especially if you’re yet to see your revenue turn. Establishing a funding goal that’s higher than the actual capital you require for your project can end up becoming a serious issue. If investors notice a funding goal that’s higher than your project’s needs, they might raise concerns over the legitimacy of your project and are likely to be cautious or unwilling to invest in it.
It’s important to remember that your funding objective should always be an accurate reflection of your project’s working capital requirements. It’s best to first accurately forecast your figures to avoid overestimating or underestimating your funding goal. You can add a small cushion of 5%-10% if you want to provide your project a financially safe zone which can be the emergency fund you need for any surprise expenses.
2. Choosing the Wrong Type of Funding
It’s vital to consider the potential benefits and disadvantages of each business funding option for your company before selecting one. It’s highly unadvisable to choose the first funding option you come across in your research and start preparing for it before you’re aware of whether that particular funding option is suitable for your business or not.
Choosing the wrong type of funding can lead you to hinder the potential growth of your project or lead to challenges in the post-pitch phase as many funding options are time, ROI, equity equity-sensitive. The best approach to selecting the right kind of business funding option is to choose one that will best support your business’s short-term cash flow requirements without endangering its long-term viability.
3. Inaccurately Estimating Rewards
Presenting business funding pitches with valuable rewards is an incredible strategy to attract potential investors, however, it can also backfire and lower your funding chances if you misjudge or inaccurately estimate the cost and figures of providing those rewards.
The best approach to include these rewards in your pitch is getting direct quotes for your production partners and service providers to include their accurate costs in your financial projections. It’s important to ensure you can provide precise details of the cost of providing those rewards when potential investors submit their inquiries about it.
4. Launching a Vague or Unclear Funding Pitch
A funding campaign isn’t just about conveying what you need, it’s about communicating what you can offer. When you launch a funding campaign, you’re pitching the value of your product/service to the audience and why they should financially support it. Your ability to convey your project’s mission, vision, and goal is directly proportional to the chances of your success in acquiring funding.
As a business owner yourself, which product/service would you rather launch: one with a clear and success-driven objective or one with a vague or murky purpose? If you’re unable to demonstrate why investors should contribute their money to your project, it’s highly unlikely that they will.
It’s critical to be well-articulated in communicating your business idea while seeking funding. Conducting thorough market, competitor, and target audience research, estimating accurate projections, and being well-informed about the goals of your business idea can help you convey your pitch to the audience in a way that resonates with them and compels them to contribute to it.
5. Not Sharing Updates in the Community
Your work doesn’t end after you’ve launched your funding campaign. Acquiring funding for your project creates a community of sorts of potential and existing investors in your network. After you’ve launched your campaign, be sure to provide updates about your funding in the community.
For instance, you should provide an update in your community after you’ve reached a certain milestone in your funding. Regularly posting these updates keeps your existing investors updated about your project’s progress and boosts your campaign’s legitimacy to potential investors as they can see people are actively contributing to it.
6. Neglecting Feedback and Suggestions
While your project’s idea might be initially yours, it takes the efforts of an entire team to see it to completion. After you’ve made your pitch, your audience of investors might offer helpful feedback or recommendations to help you improve your business idea.
Encouraging and analyzing this feedback can lead to a breakthrough since many of your investors might be industry experts with rich market knowledge about your project. Not only does this improve your pitch’s potential for success, but also shows the respect and appreciation you have for your investors by valuing their opinions and implementing them where necessary.
7. Not Being Transparent About Acquired Funds
Business funding doesn’t just involve forming strong investor relations in your network, but it also consists of retaining existing relationships to fuel long-term growth. After you’ve managed to acquire certain funding milestones, it’s important to be transparent about their usage. One of the worst funding mistakes is to purposefully or unintentionally mislead investors about capital usage, which can often result in serious legal or financial implications.
It’s vital to maintain the same level of transparency about using that money as when you’re raising it. Your investors need to be aware of where their funds are employed so they can continue to feel reassured and confident in investing in your business.
Avoiding Business Funding Pitfalls for Sustained Business Growth
Business funding can be the kickstarter most viable business ideas require to begin generating promising growth. When you’re excited and passionate about sharing your project’s potential with investors, pitching a funding campaign might seem easy enough.
However, many business owners forget the importance of well-preparation and end up committing big funding blunders by either setting too high or too low funding goals, giving up too much equity, unintentionally misleading investors, etc.
It’s critical for business owners to organize their business affairs and be well-prepared about their projects to ensure their funding campaigns go smoothly. Working with expert business funding services can help you obtain the financial push your business needs to elevate its operations to pursue substantial growth and long-term success.
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