It is often noted that many entrepreneurs and start-ups have a few preconceived ideas when it comes to using ‘Other People’s Money’ (OPM). These ideas can negatively affect the outcome when an entrepreneur has a need for financing. Cash infusion is vital to your business. Your approach methodology must take into consideration a number of factors.
I am sure you want this need to be satisfied where the transaction is a win-win-win for all parties. When considering OPM, you must understand the following key points:
1. Must have “Skin in the game”
When you think of “Skin in the Game”, it is easy to conjure up the physical pain from skinning your knee at some sporting event or other. In the financing arena it is the concept of you financially investing a portion of what is needed to make your business or idea viable. However great your business or idea is, if you are not willing to invest your own money to make it a success, then you cannot and should not consider asking any financing source , whether tradition or non-traditional, to layout the full amount needed.
If you are unwilling or unable to invest money in your business or idea, you will not be moving forward anytime soon. It is important that you understand the risk to the investor or lender.
2. Must Show Your financials
Why showing your financials is such hard one to comprehend, is beyond me. It is negligent on your part to think you can slide to home base without hitting the ball. You cannot and will not get the money you need for your business survival or growth with sharing this information. It also means that the investor or lender will not know who you are without your financials. Make this a non-issue by being forthright and upfront with your financials and current monetary position. If you do not follow through on this, it will seem as though you have something to hide. Do you?
3. Must Have Exit Strategies
It is important that when you build a house, you build it with a door to go in the front and one out the back. Maybe you will have one on the side. It is the same thought process with your business and using other people’s money to fund it. You must know if you are going to refinance the loan, sell some assets in the future to pay it off or sell the company, for that matter. Whatever, you come up with, make it viable for all parties.
You should consider watching “SharkTank” on ABC-TV (Fridays at 9pm EST - check program) as a part of your entrepreneurial education. They do share some valuable insights to business and investing.