A Newbie’s Guide on Investing a New Business

How often have you thumbed through a business opportunity magazine and felt you’d really like to get in on that…if only you had the money?

If you're like most who are seeking greater opportunity and wealth, this probably happens with you more often than you care to admit, except perhaps in strictly private conversations.

When the average person sees one of these opportunities or comes up with a similar idea of his own, the problems of start-up capital may seem formidable. But in reality, they may not be. In fact, just about anyone with a good credit record and an "insider's sense of business" can get the capital he or she needs, whenever it's needed. The secret is in knowing how to put together a proper proposal, and to present it to the right person. These are the "how-to" instructions on investing a new business:

1. Business Plan
The first thing you're going to need is a complete business plan. This is a complete and detailed description of exactly how you intend to operate the proposed business. Your business plan should detail precisely the product or products you plan to seek: how you're going to produce or manufacture the product; your costs (inventory costs if you're purchasing them from a supplier); who is going to sell those products for you; how they're going to be sold; the attendant costs; when you expect to recoup your initial investment; your plans for growth or expansion; and the total peso amount you're going to need to make all work according to your plan. Your business plan must be detailed — complete with projected income and expense figures — through at least the first three years of business.

2. Capitalization Proposal
First, keep in mind that whenever you ask somebody for money, whether it's for a small personal loan or a large amount of money to finance a business, you're involved in a selling situation. You have to prepare a "sales presentation" just as if you were getting ready to sell an automobile or refrigerator. Within this sales presentation, you must have all the facts and figures; you must anticipate the questions and the possible objections of the prospective lender with answers or explanations; and you must "package" it as impressively as you would yourself for an audience with the president of IBM or AT & T.

3. Hire a CPA
The more money you ask for, the more "in-the-know" will be the people you want to borrow from, and so the more detailed and organized your proposal must be. A CPA can be hired to help you put it together properly, once you've got the facts and have a business plan he can work from.

Look at it this way: The more money you request for your business, the more your lenders or prospective investors are going to want to know about you, your planning, and your business. They want to be impressed with the fact that you've done your homework, they want to see that you've researched everything and documented your facts and figures; they want to be assured by your presentation that investing in your business will make money for them. It's just that simple at the bottom line. Unless you can instill confidence in them with your business plan and loan or investment proposal, they're just not going to give much positive thought to your request for capitalization.

4. Net Worth and Credit History
You will need a balance sheet describing your net worth, the worth of what you own compared to the amount of money you owe. You'll also have to prove your stability and money-management talents relative to how successful you've been in paying off past obligations. If you have had credit problems in the past, get them "cleaned up."

So, now you have your balance sheet prepared, your credit history organized in a light that's favorable to you; your business plan (with costs and income projected over the coming three years), you're ready to start looking for lenders or investors.

5. Finding the Money
Many people seem to be unaware that most of today's largest corporations started on a shoestring on borrowed money. Many people seem to feel that unless they've got it all "in hand" in savings, then they'll have to keep plugging away until they can save up enough to take the big plunge. Nothing could be farther from the truth. Just a quick bit of research will show that 999 out of every 1,000 businesses were begun on borrowed money.

Money from Family Members
Look to your family and friends for financial help. Approach them in a business-like manner; tell them about your idea or plans, and ask them for a loan. Agree to sign a formal statement to pay them back in three, five or ten years, with interest.

Money from a Partner
When you have your proposal assembled, you might even want to think of a limited partnership or even a general partnership arrangement as a way to finance your project. In any kind of partnership, each partner shares in the profits of the company, but in a limited partnership. Each person's loss liability is limited to the amount of money he initially invested.