Becoming a small business owner is a stressful prospect. Even the most experienced in their field struggle when they go from being under the safe gaze of a corporation to being completely on their own. Double that stress when it comes to financing their venture. Even bootstrap startups are going to struggle with funding after a time.
Angel investors or venture capital funds are eventually going to become a part of your future plans. While finding people to invest in your future will probably be easier than you expect. But even with a solid product or service, there are risks.
Being aware of those threats from the beginning will help you avoid these common investor traps.
Improperly Guarding Assets
Let’s say you get a great investor. Your business is booming, things are looking up…then tragedy strikes. Your investment pool is tainted by a scandal. Your small business, in spite of being totally unrelated, falls under scrutiny. Legal issues arise, and you are facing serious consequences for their bad behavior.
Protecting your assets—both personal and professional—can keep you from losing everything. Filing different LLCs are separate parts of your business is one example. Another is protecting real estate from capital gains tax through putting it in a trust.
Protect your assets now to avoid problems later.
Lacking A Clear Business Plan
You have been pitching to dozens upon dozens of investors. Your product is excellent, and you are convinced it can go far. Why isn’t anyone biting? Probably because you haven’t presented a complete business plan that proves you are worth investing in.
A good business plan will have information on:
- What you have spent so far
- How much you will need for different aspects of running your business (advertising, development, research, design, employees, etc.)
- A projection for growth
- Proof of market demand
- Future feature/product roadmap
- Plans for expansion later on
If you can’t prove to your investors that you are on the ball, they won’t give you their backing.
Misspending, Before and After Investments
In the beginning of launching your business you took out a bank loan and put everything into building it from the ground up. But the way you appropriated funds was less than stellar. Now you are seeking anyone at all that can give you the cash to keep going.
What you have done is shown investors that you can’t manage money. That will make them far less likely to give you any, or continue to give it to you if they have already invested. Remember that their goal is to make a profit over time. You have to prove they can rely on you.
Know The Risks To Reap The Benefits!
These three risks are major pitfalls for the average small business owner seeking financial backing. If you are ticking any of them there is a good chance you will lose out on any chance you may have had to land investors.
So be careful, be responsible, and be aware of what can go wrong.
Author: Jackson Cooper shares his expert experiences in real estate, finance, investments, and asset protection with working professionals and everyday men and women to help better his audience’s financial success and security. Outside of work, he values time with his family, enjoying all that Park City Utah has to offer: skiing, mountain biking, film festivals, and cuisine. Connect with Jackson – Twitter – LinkedIn