MBA1947 When to Secure Funding for Your Business + Free Ride Friday

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Hey oh. Welcome to the $100 RMBA Show. Because we know your business means the world to you. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and today's episode is Free Ride Friday. On Free Ride Fridays, we give away a lifetime membership to one of our programs. If you want to win a free ride, just leave us a rating and review on Apple Podcasts. By doing so, you enter our weekly random draw. We announce a winner. Every single Friday we announce this week's winner a little bit later in the episode. In today's episode you will learn when to secure funding for your business. Regardless of what funding option you choose. Whether you look to get an angel investor, a friends and family round, vc capital, debt financing, these are all options. But the when and not the how is actually quite important. Often it's a lot easier to get funding if you time your funding quite well. It actually can be detrimental for you if you actually go out and get funding too early in the process. I'm going to share with you when is the best time for you to go out and get funding. Not only in terms of getting the maximum amount of funding that you can get, but also good timing for you and your business. When is a good time for you to start seeking out financial support for your business? Because the process of getting funding can be distracting. It takes a lot of time, it takes a lot of effort and it could be well worth it. But if it's not timed right, it could be detrimental to the business. So let's nail that timing and that's what we'll accomplish in today's episode. So let's get into it. Let's get down to business.

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A lot of new entrepreneurs think I got a great business idea. If I can only get funding for it, it's going to take off. This is a very inexperienced point of view. This is just not how business works. When anybody invests in a business, they're investing in either or both of these things. Number one, they're either investing in the actual business itself. Meaning you have to have an established business with a proven track record of sales and revenue that says, hey, I have proven already that this business has traction. People want what I'm selling, I'm making revenue. Here are the number of sales I made. As I've mentioned before, in different episodes, it's pretty much the first question that is asked on Shark Tank. How many sales have you made so far? They need to know, hey, is this business worth investing in? Does this actually have legs? Do people actually want what you're selling? And if so, they're investing in that business. The second thing they'll invest in is in the entrepreneur, in the business owner. They believe in that business owner that they have the kid capabilities and the track record to pull off the idea. For most new entrepreneurs, you will not get funded based on this criteria or based on this idea because you don't have a track record, because you don't have credibility. A good example of this is a second time founder, somebody who founded a company, it was successful, it launched, maybe they've exited or maybe they took a backseat from management and there's on the board of Directors now, and now they're starting a second business. Many people will invest in this business because of the entrepreneur that's starting it. This person created something significant, they probably can do it again. So if you don't fall in this second rare camp, and it is rare because I know a lot of entrepreneurs and this is a very exclusive club where they had so much success with their first business. That's so simple for them to get funding just based on their track record, regardless of what their idea is. Then you fall in the first camp, which is you will get investment based on your business. Now this is not a bad thing, okay? This allows you to establish your business on your own terms before you secure funding. Now, I mentioned a few different types of funding in the beginning of the episode. You know, you might get angel investment. You might ask your friends and family, which is called the friends and family round. Hey, would you like to contribute, you know, $5,000 each for stake of the company? You might go with debt financ. Put debt financing aside for a second because it's kind of in a separate group and we'll talk about that. Because often in debt financing they do not take equity. But if you're getting any other kind of investment where you're giving up equity, which is typical, then you're going to need to sell this business, pitch this business to whoever is going to invest, whether it's friends and family, whether it's a vc, whether it's an angel investor. And the easiest way to pitch is with data. Okay? The numbers don't line. If the numbers are in your favor, it's going to get easier and easier for you to get money. So to make your life easier, get some data. Okay? It's pretty simple. Get some wins under your belt. This is why I say do not seek out funding until you have enough data to prove to the person you're asking for money from. Hey, the data shows this is a, a no brainer. It's got to be a no brainer for these investors to make your life a little bit easier. Because it's hard to ask for money. It gets almost impossible when you have very little data to back it up. When I say data, I mean information stats that show your business works. This means sales, this means revenue, this means profitability. This means run rate. And the perfect, perfect position to be in is where you've proven that you have a customer base, where you have a good number of customers that have bought from you and your profit margins allow you to be profitable. That's a really good place to be. The minimum that is kind of the talk of the town in terms of investing is 50 to 100 thousand dollars a year. So if you're not making 50 to 100 thousand dollars a year on your business in terms of revenue yet and you're not profitable, then keep going. Okay? Keep growing your business on your own, using your own financing, with your own savings as much as possible. I know that some businesses require funding earlier on because it's gonna be really hard for you to do that. But in today's day and age in the online world, most businesses can get started and can continue to grow based on side hustles, side savings. We've had several episodes on this, but the point here is that you're not really making enough sales and enough revenue to prove you have really tapped into the market. If you don't have between 50 to $100,000 a year, of course, anything above that is gravy. So if you go to an investor and say, hey, I made $150,000 in sales last year in my first year of my business, I'm profitable. The business is running. This is what my customers say about the product. So much easier for you to get a yes opposed to, I haven't launched, I don't have any customers. I don't know what the customers think about my product yet because they haven't bought it yet. Or even something in between where you make a few thousand dollars in sales in a year, as significant as that might be for you as you're starting out your business, that doesn't really sound like a business that people want to invest in where they're going to get a return. You can make a few thousand dollars with garage sales, but no one's investing in garage sales because, hey, there's not really a lot of return on that investment. Now when it comes to debt financing, it's a little bit different because basically it's like a loan and it's based on your performance right now, the cash flow that you are getting and basically what the bank cares about is they're just going to get their cash back with interest. If you're running a business with a recurring subscription or payment, a SaaS business, this makes it a little bit easier to get funding because you have more of a predictable revenue. And most debt financing options are looking at at 100 to 150,000k in revenue. To get started similar to this is like getting a bank loan from the bank of business loan. They're going to need some sales numbers they're going to need some revenue numbers to say, hey, okay, it's worth me lending out 50 grand for you to kind of grow your business, for example, because you've made already, you know, 50 to 100 grand in your business. It's kind of equivalent of you getting a loan with a job salary, right? Are you able to buy a $50,000 car if you have a job that's $100,000? Probably you're going to get that loan approved if your credit is pretty decent. And the same will go with a business bank loan. So all in all, you do need sales, you need traction, you need to be in a healthy position before you start asking for funding or seeking out funding. This is good news, this is a good thing, because you don't want to get mixed up in funding options if you're not in a healthy position. You want to be in a position of power, position of dominance, a position where you're playing offense and not defense, where you know that when you get this money, you know exactly what you're going to do with it. You know how it's going to prove your business. You know how that investment is going to really double your revenue, for example, and it will be super simple for you to pay back that loan or pay back investors or give them a return on that investment or make it worth their while.

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I've seen a lot of pitches by a lot of startups in my days and I would say probably one out of five pitches. I would want to have a conversation with the founder. Not that I would invest, but just at least have a conversation. And the main reason why is because I'm not going to give up my hard earned dollars and risk it on a business that doesn't have the data to prove it's going to take care of my money. You might believe in your idea, you might think it's a surefire thing. You may be super passionate about it, but as an investor, you're not really thinking about any of that. You're seeing this very clinically. You're saying, hey, where will I get the most money in return for my investment? Just like you're picking a stock on the stock market, which company has proven to me if they're successful. Well, you know, that's why people invest in companies with a track record like Apple. So do yourself a favor and allow yourself to be in a better position by having the data, the revenue to prove, hey, my business is a sure thing. It's gonna do well. You can consider yourself lucky if you had the opportunity to invest. Thanks so much for listening to the Hundred Dollar MBA show, but today's episode's all over. It's Free Ride Friday. Let's see who won today's Free Ride and the winner is Mika from the Netherlands. Mika says best podcast ever. Five stars. Not even kidding. I started listening a couple months ago and I'm completely hooked because on average each episode is 15 minutes long. So Omar cuts to the chase and I can implement it immediately. Thanks. Mika2002 is the handle on Apple Podcasts. Your mission is to email me over at omar@100mba.net so I can hook you up with the Free ride to the Automated webinar challenge. Our $99 course on Automate your leads and sales with Automated webinars is 30 days. It's step by step. It's pretty incredible. If you want to run a free ride, just leave us an Apple Podcast rating and review and you enter our weekly random draw we call Free Ride Friday. Before I go, I want to leave you with this. Many people think that they can get investment for a business idea because it's just simply a good thing like this is going to help the world. This is going to improve the way we do xyz. This is aspirational and I agree. That's really cool that you're starting something like that. But in order for something to actually work for actually to implement those aspirations, it has to be sustainable. It has to actually survive. And if it doesn't have a business model that proves that, then it's basically wasting money. It's actually throwing money down the drain for something that's not going to see the light of day or it's not going to last too long. So don't fall in love with your idea thinking that of course people are going to invest in this. This is a fantastic idea. I've seen this so many times. People just fall in love with the cause. It's great that you're passionate about it, but you got to make sure the business of it works so that it's a no brainer for people to invest. Thanks so much for listening and I'll check you in Monday's episode. I'll see you then. Take.

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