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Orders in Hand Can Be Better Than Revenue When Seeking Financing

Guest post by: Joseph Lizio

Article Overview: Most lenders and investors want to see a proven track record for your business. Usually this comes in the form of current revenue. But, there are other ways like instead of selling to an unproven idea to a lender, sell it to your customers first.

Orders in Hand Can Be Better Than Revenue When Seeking Financing

An age old conundrum - it takes money to make money; so how does a business get the money it needs to grow itself to the point of making money? Every day, new, small businesses seek some form of financing; be it a loan or equity capital. And, each business usually gets asked the same opening question; "How much revenue has your business made to date?"

The reason that this question is asked, either by a bank, lender or venture capitalist, is that these people or their organizations only want to back proven ideas. The best way to show proof of a business model is from its current level of revenue. Revenue shows that there is a market for the products or services being offered, that there are customers willing to part with their hard earned money to purchase those products or services and that the management of the company can actually pull everything together to execute the model. Further, revenue shows that the business can either payback a loan or help the investors realize a return for their investment.

But, revenue does not have to be the only way to show the potential of a business idea or model. If the goal is to show that your business idea can attract customers, provides a needed product and generate return - than the business could also accomplish this through orders in hand.

Look at it this way. Most businesses come up with an idea, try to put what they can in place then seek financing to make it all happen - as it usually takes money to make money. If they fail at getting financed, they don't pursue the opportunity. Fair enough as it is hard to go out on a limb when a major piece of the business (the financing) is missing. But, at the same time, these business owners are asking the lenders or investors to take a risk on the business without even the smallest proof of concept.

Thus, the conundrum.

However, many businesses in the past have been able to overcome this puzzle. Example, Bill Gates sold IBM on the concept of an easy operating system for desktop computers. Then, even though he had no way of fulfilling that order, was able to leverage that contract into financing. He essentially got the business first then sought out the financing to pull it all off.

The same can be true for your business. Before seeking financing, knowing that banks require at least two years of profitable operations or that investors want to see a proven track record, get out and sell your product or service first. Then, with those orders in hand, when you get asked the question of what has your business done to date, you can show proof of your concept through a handful of orders.

While this still puts risk on the business owner as potential customers are awaiting your product and service, it does not place the dreaded financial burdens that many business owners try very hard to avoid. There is still risk. But, what is the worse that can happen? You might just simply have to tell your potential customers that you can not follow through and if you let them know up front - the burden to them might not be as hard.

Orders in hand can show proof of your business idea just as strongly as revenue can. You just have to get out there and be willing to sell your idea - not to investors or lenders but to customers. What better way to show that you will go all out for your business than by showing up with testimonials in hand from consumers who are willing to buy from you before you even show them what they are buying?

The only real difference is that you have to sell your unproven idea to customers as opposed to selling it to investors or lenders. If your purpose is to mitigate your financial risk, selling to customers just might be your easiest path.

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Article Tags: business, capital, financing, loan, orders



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