Getting Investment.

The investment route to acquiring funds is a challenging route for a start-up. As investments are against equity rather than on collateral, the investors would be sharing the risk. Hence, the investor would be as interested in you as an entrepreneur, your vision and your commitment to the enterprise as he would in the assets you have created.

If you have a sufficiently innovative idea, you may approach angel investors who would help you at the starting stage. A commendable business plan too can help you arrange alliances and therefore obtain financing from them. Like bootstrapping and getting a bank loan, obtaining funds via investors has its share of challenges. In this day and age, having high-profile investors can give you new business credibility and contacts, which can help make your business a success. Though success cannot be guaranteed, it can provide you with a source of financing that can easily help make a more rapid growth.

You usually have to give up a large percentage of equity ownership in exchange of venture capital funding. This gives them a huge say in your business, which could put you under great scrutiny in your duties and earnings. When accepting this way of funding, you also have to agree to certain restrictions with the investors on things such as how you will pay yourself, how involved you will be in other operations and how much equity you will have to give up to your investors.

But more than the current assets, the investor would base the investment decision on the potentially inherent in your business to grow dramatically in the near future.

Growth Potential of your enterprise is measured in terms of your own commitment to your business, as you are the most important aspect of it. Investors will then determine the value of the concept, the potentiality of the market and your financial projections. The crucial aspects over which the final decision rests is the intangible value you have created in your business in terms of the brand, the goodwill with customers and the processes and systems put in place that deliver satisfaction to customers.

Your commitment to your enterprise will be viewed in terms of how much of your personal assets have been invested and whether you are dedicating all your professional time and attention to the business. The originality of the concept and the difficulty to replicate it will enhance investment prospects as it keeps you ahead of the competition. The size of the market is important to see if the growth plans would be supported by availability of targeted customers. These factors being default, investors will be keen to review the extent to which you have been able to build success in your business.

Write in to us for your views and opinions. Best of luck, Quitters!

A Word on Bootstrapping.

We will talk about bootstrapping today. Bootstrapping refers to a self-sustaining process of acquiring funding that moves forward without much external help. An entrepreneur is said to be bootstrapping when he finds and builds the company from personal finances or from the operating revenues of the business.

Compared to seeking investment, bootstrapping can be beneficial because the entrepreneur is able to have a control over all decisions. In addition, it saves time spent on hunting for investors. Also, since you would not have huge sums of money when bootstrapping your restaurant business, you will spend wisely and learn financial discipline, which could be beneficial for your food business.

The biggest challenge of running a business in bootstrapping mode is to solve cash flow problems before they start impacting operations. One advantage that the restaurant business has over start-ups in other industries is that while most purchases are done on credit, sales is done in cash or credit card sales. You would still need to negotiate suitable credit terms from your suppliers so you can shorten the operating cycle when needed. The operating cycle of a business marks the period from cash outlay to cash receipt – this is an important concept for controlling cash flow.

Working in bootstrapping mode will force you to be more customer-focused since all the money is coming from them and not investors. But if you plan to open up a fine dining place; which needs large sums of capital to get started, bootstrapping might not be enough. You might need to take a loan or secure investment in that case.

Tips on Bootstrapping:

1. Leverage all your personal assets and use all your savings to finance your restaurant;
2. Take help from family, friends and relatives. Take on funding partners;
3. Explore creative ways to generate turnover such as bartering services with other businesses;
4. Talk to your suppliers and extend your credit periods.