With the right funding and a well-thought-out plan, your business can be limitless. Get a couple of things wrong and you might be doomed.
If you’re a business owner seeking funding, there are some common mistakes that you might be making which could be jeopardizing your chances of success. In this article, we’ll take a look at five of those mistakes and how you can correct them.
1. No business plan
One of the biggest mistakes small business owners make when seeking funding is not doing their homework. A business plan is essential for convincing potential investors that your business is worth their money.
Before approaching potential investors or lenders, it’s important to have a clear understanding of your business’s objectives. This includes putting together a detailed business plan and creating realistic financial projections.
A comprehensive business plan should address key areas of your business. It should entail the business structure, objective, marketing, and financial projections. Your business plan should also detail your target audience.
2. Underestimating/Overestimating how much money is needed
A business plan will be very instrumental in helping you know how much your business will need. Take into consideration the loan processing fee and other charges you might incur. You should also consider any potential unexpected costs that could arise. Once you have a good idea of how much money you need, you can start seeking out funding sources.
When you underestimate how much money you need, you may not be able to cover all of your costs and may have to cut corners in order to make ends meet. This can lead to a lower quality product or service and can damage the business’s reputation.
On the other hand, if you overestimate how much money you need, you may end up with more debt than you can handle. This can put a strain on the business and make it difficult to meet its financial obligations.
3. Poor professional guidance
Everyone has a business idea or a clue of how to run a business but actualizing the idea is what counts. As a business owner, it is important to seek professional guidance from experts and ignore all bark and no-bite persons.
The experts will be able to guide you on what kind of financing will be suitable for your business and when is the best season to also seek funding depending on the model of your business. They will also help you on understanding the terms of loans that won’t hurt you and your business.
4. Taking the wrong kind of financing
Another mistake business owners tend to make is not doing their research well. We have so many financing options available in Kenya and choosing the right one will be key to setting your business up for success.
There are a lot of different types of funding, and not all of them will be a good fit for your business. The only way to find the right type of funding for your business is to do your research.
By understanding your business model, target audience, competitors, and product or service demand, you will be able to determine the best type of financing for your needs.
For example, some businesses might do better with a loan from a bank. Others might do better with investment from venture capitalists. And still, others might do better with crowdfunded investments.
5. Skipping the fine print
The devil is in the details. You should be aware of the terms and conditions of the services and financing you’re taking on. For example, some loans might have very strict repayment terms that could put the business in financial trouble if you’re late on payments.
Similarly, some investors might want a stake in the company in exchange for their investment, which could give them control over important decisions.
Be sure to go with an agreement that is beneficial to you as a business owner and your business, as well as the financier.
A bonus tip while seeking funding is to remember to negotiate. Once you’ve found a potential investor or lender who is interested in your business, it’s important to negotiate the terms of the deal. This includes things like the loan interest rate, repayment schedule, and equity stake if applicable.
Your business is depending on you to make the right call. Think through every decision carefully and remember to seek professional guidance or have a business mentor help you make the right decisions at the right time.
What do you think? Is there a point that we might have missed? Let us know in the comments section below.
For financing options, browse through our loan products to know which one will suit your needs.