Entrepreneurs and Fund Providers: Two sides of the same coin

At a recent workshop held for small and medium business enterprises, one of the guest speakers, who is an entrepreneur ended his presentation with the comment “it is very difficult to get funding from business angels, venture capitalists and other providers of capital” because they will only end up in wasting your time by asking for both “relevant” and “irrelevant” documents. Immediately after his presentation came a private equity fund manager who ended up with the comments that “there are no good and worthy deals” around the corner; we have the funds but no good deal to invest in!

The question now is: Who is right – the entrepreneur or the private equity fund manager?

The facts are:

• There are good, wonderful and potentially viable business ideas out there;
• The Funds are also available.

The challenge is that there is a huge gap of understanding between the entrepreneurs and the providers of capital.

The entrepreneur MUST present his business in a way and manner that will attract funding from various providers of capital. By implication, the onus is on the entrepreneur to showcase his business in such a way to attract prospective investors.

Often, the entrepreneur or the business promoter who has the vision and understands the idea fails to clearly present the idea to third parties. Unfortunately, rational investors will not invest in a business that they do not have a full understanding of. Experience has shown that it is usually safer to decline an investment that does not pass a viability test than to invest in an ambiguous investment with the hope that it will get better after the investments may have been made.

Before an entrepreneur gets funding from any financier, he must let others understand what his plans are for the money. One of the questions usually asked is: What is the guarantee that once an entrepreneur gets the desired funding that he/she will not take the next available flight out of the country? This often is viewed from the perspective of commitment and competence of the business promoter.

The entrepreneur among others should be able to understand the principles of a four–legged stool on which every business venture stands. The four-legged stool as the name implies refers to the four legs of a chair or stool. With the four legs, the stool is comfortable to sit on but if one of the legs is off or broken, the chair becomes uncomfortable (though may still stand with careful balancing).

The four legs of any business is summarised below:

1. Market and Customers

• Who are your customers, why will they buy your product and where are they located?
• Is there a captive market for your product?
• Do you think your identified customers can pay for the goods/services?
• Who are your competitors and how will they react to your product/business?

People, Product & Services

• What exactly is your product/service?
• What is the level of acceptability of the product?
• Do you understand the manufacturing process for the goods?
• Can you deliver value that people will be willing to pay for?
• What value is the product going to offer?
• Who are behind the business?
• Who is responsible or in-charge?

Ability to sell

• How do you intend to sell your products/services – Marketing strategy?
• Can you effectively communicate?
• Do you have the passion, zeal and determination to sell?

Finance and Money Matters

• Do you understand numbers, accounting and money matters? If no, will you seek support?
• What is your cash flow management ability?
• Do you understand the business and finance environment?
• What is your detailed plan of action and how will you get your resources?
• What skills will you need and how will you access them?

The question here is: How can this gap be bridged?

This financing gap can only be bridged if both parties (entrepreneur and financier) settle down and dig into the business with great passion just like the passion for the idea. It is all about the business as a whole; from operations, customers, cash flow, planning, branding, contacts, pricing, margins, controls, alliances, barriers, timing, tactics, risk management etc.

Getting the business plan right the first time is extremely difficult for a lot of entrepreneurs; the plans are always adjusted along the line based on realities on ground. However, if well executed, the financing will always fall in place at the end.

Summary:

The reality on ground is that Investment Funds are always available. However, no rational investor will risk his/her Funds on a poor or half-baked business idea, especially with a team that has no proven track record.

A well thought out business plan will give you a foot to the door of potential investors; at least they can start discussing with you and narrow it down to what they might need.

It is unfortunate that the traditional finance houses (including the banks) often do not wish to finance these sets of entrepreneurs mainly because they either lack the required skills set or will not be willing to finance businesses and entrepreneurs with long term maturity/gestation period. In some cases, these financial institutions may have been “burnt” in some transactions.

The way Forward

A well written Business Plan will go a long way in resolving this barrier between the fund providers and entrepreneurs.

A business plan is a complete description of a business and its plans for a period, usually between one to three years and in some cases beyond a five year period. For an existing business, it tries to explain what the business does while for a new business, it will address what the business plans to do when it becomes operational.

Apart from explaining what the business will do, a typical business plan will also try to answer some general questions such as:

• The nature of the product/service, who will buy the product and/or service and why?
• How viable is the business? This is done with the assistance of the financial forecast which highlights details of funds required to develop the business, the utilisation of the funds, the projected revenue/ expenses etc.;
• Who are the promoters of the business? This is done to ascertain competence and commitment of the promoters.

All over the world, people dream of owning their own businesses, usually for different reasons. While some dream of running their own business purely from the point of being financially free, others are motivated by factors such as being their own boss, avenue to greatness, fame and wealth. For some other people, it is purely to leave a legacy for their children or to create a value / contribution to the society at large through their unique product/service offering.

Whatever your reasons for starting a business, you need to be adequately prepared for the challenges ahead as venturing into a business without adequate preparations will lead to serious and unexpected challenges. These challenges may end up pushing the entrepreneur out of business.

A lot of entrepreneurs often start off with paid employment before venturing out. It is good to note that Entrepreneurship is totally different from the regular paid employment where one is expected to work for some hours and get paid at the end of a payment cycle (weekly or monthly). Venturing into entrepreneurship without adequate planning often leads to strained relationship among family members as it often leads to changes in lifestyles, different work schedule and family/societal expectations.

The Business plan simply directs the thoughts of the entrepreneur / business promoter into a whole lot of possibilities. It helps to plan in advance thereby predicting foreseeable obstacles and how to avoid them and at the same time being aware of those challenges which cannot be avoided.

If you would like to have a well written business plan with financial model, kindly reach out to us by sending an email to info@businesscatalystslimited.com or call the number +234 817 908 6353 to speak with one of our representatives.