As entrepreneurs, you’ll know that growth is key to success. But expansion often requires money. Thankfully, this is the ‘age of the entrepreneur’ [1] and there are many ways you can raise the funds you need. Long gone are the days where your only choice was to trudge down to your local bank, business plan in tow, with your success in the hands of the bank manager. There are many options, but it is vital to consider the most appropriate route for your business. From crowdfunding to private equity, our weekly guides will help you identify the best method for your company, so you can achieve the growth of your dreams.
Here at Add Then Multiply, we have dedicated a quarter of our FACE model to raising money.
It is the first pillar of our FACE model: Fund, Acquire, Consolidate and Exit. As it is such a fundamental part of our business, we thought it apt to share our experience and highlight the steps you need to take to raise money. Over the course of his business life, David has raised over £100 million through banks, crowdfunding sites, angel investors, venture capital, private equity and the stock market. Before we get started, there are a few things you must do.
It is critical that your business is set up as a limited company. This is something we advise all entrepreneurs do, regardless of whether they are seeking to raise capital or not. Operating your business through a limited company makes sense on so many levels. It protects you legally by separating your business from you as an individual, it is often more tax efficient for paying yourself, and for companies registered in the UK, it allows you to take advantage of some very attractive tax breaks that you can offer to your investors (more on that in a future post).
Secondly, you need to decide whether to take the debt or equity route when raising funds. There’s an important distinction to make: when you borrow money, you have to pay it back. When you raise money by selling equity (shares in your limited company), your investor has an ownership stake in your business. You don’t have to pay them back, but if you sell your business they will be entitled to their percentage stake in the price you sell for. Add Then Multiply specialises in equity, so we will be focusing on this over the coming weeks.
The next step is to ensure you have a robust, considered and thorough business plan. It should set out what the business is, where it is today and the direction you want to take it in. Keep it clear and simple. Identify milestones you want to work towards and include these in your plan. Clearly state how you will use the money raised; this will not only give you clear goals, it will also enable potential investors to understand what your business is and where it’s going. Certain companies may require more detailed business plans than others, but to get started, find a good template and work from there. Some useful examples can be found here. Or if you’d like help from our experienced team, you can contact us and we’ll be more than happy to help.
Before we embark upon this series, it is important to note that when you raise funds, whether by taking on a loan or selling equity in your company, you are giving someone else the right to have some say over how your business is run. Some entrepreneurs we know prefer to have total control. If this sounds like you, then raising money might not be the right thing. Consider the question; Would you rather own 100% of a shop or 1% of a retail empire valued at £100 million? There’s no right or wrong answer, but it’s an important decision to make.
Coming up…
Over the next six weeks, we’ll take a look at the different ways your business can raise money and help you identify which route is best for you. Next week, we discuss one of the fastest growing trends for raising money: Crowdfunding.
[1] See Daniel Priestly’s book Entrepreneur Revolution in which the term was originally coined.
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