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How to persuade someone to invest in your business
Money Making Insider | 24 November, 2009 | Hot Topics:
In last week's issue Paul Lawrence started to look at how to generate start-up capital for a new business idea by asking a business partner to join in your venture. He introduced the concept of SIPE – Solicit, Interest, Persuade and Execute – and he explained how to approach the first two elements. In today’s issue he tackles Persuade and Execute...
How to persuade someone to invest in your business
Paul Lawrence
3. Persuade: Use statistics and estimates to convince your prospective partner that your business is a good investment. Your persuasion efforts will have two goals:
First, to prove the substantial profit potential. While you don’t necessarily need a fully detailed business plan, you should be able to offer some basic numbers.
For example, you could estimate your gross revenues for the first year and provide some reasonable basis for the estimate. Then offer a reasonable estimate of your expenses. If it adds up to a healthy estimated net profit, you’re off to a good start.
Second, to demonstrate the low-risk factor. Although you can’t ethically or legally guarantee that an investor won’t lose her money, you can explain why there is a good chance she won’t lose it. Your evidence could include industry growth statistics, a sound marketing plan that will allow you to swiftly capture market share, and examples of similar successful businesses.
In my case, I created a profit projection sheet that broke down the revenues and the costs of the business. I then cited specific suppliers who sold the products we’d need and provided several examples of local entrepreneurs who were successful in the snack-vending business.
4. Execute: Turn a discussion into an actual business deal.
Once my co-worker indicated that she was interested in investing in my business, I suggested we have another meeting to formulate a deal. I arrived at that meeting prepared with a ‘deal memo’ - a basic outline of our understanding.
The main reason to have a deal memo is so that, in the future, there will be no debate as to what was originally agreed to. If your deal is large or complicated, you may want to have a formal partnership contract. But in many cases, a deal memo clarifies the terms of the agreement and is strong enough to be legally enforceable.
In my 15 years of being successfully self-employed, the great majority of my partners have profited from our ventures. There are certainly risks involved in investing in any small business. But if you have a solid business opportunity to offer, you’ll likely be able to structure a ‘win-win’ situation for both you and your partner.
Editors note
Pascale Barrow
Money Making Insider Editor
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