There’s a bootstrapping spirit that is common among entrepreneurs that can take you far. However, there are times in every business cycle when the need for investors may arise. The challenging part is deciphering the right time to go it alone versus bringing on investors.
There are pros and cons to bringing on investors, like any other aspect of business, but if you’re dealing with any of these five issues -- it’s likely time to consider them as an option.
1. Your sales are strong -- too strong. Surging sales are one of those “problems” that many entrepreneurs enviously wish they had. However, this isn’t a situation to be taken lightly. When your sales are bursting at the seams it can cause major production issues if you aren’t scaled up to meet the demands. Clients aren’t keen on backorders, delayed shipping or being added to a service wait list. Slow response times are a business killer, so if sales are booming so much you can’t keep up, it’s time to consider approaching investors. An influx of investor capital can help you staff up and get the proper merchandise and production equipment needed to meet demand.
2. Your company is outgrowing you. There are entrepreneurs whose strength lies in running the business and those whose strength lies in generating big ideas and concepts outside the daily realm of business operations. If you’re a big-idea generator, is your best use of time really running the company? Are you even well suited to be running your business to its best ability? Hiring a great CEO, COO and even CFO is going to cost you money. If your business isn’t quite ready to support this influx of salary but is quickly headed in that direction, investor capital can help you expand to get the senior staff you need that will take you out of daily operations and back into thinking big.
3. You need a prototype. If you’re a product-based entrepreneur with a big idea, you may need investors earlier on than anyone else in the business game. With great ideas come the expenses of patents, legal protection, prototypes, research and development and testing -- all of which can carry a large price tag. If the concept is truly universal, don’t let a lack of funds keep you from going forward. Put together a proper pitch to get investors interested and carry the idea forward.
4. You need big equipment. Manufacturing and production costs can be expensive, as can office space and advanced technology. If your business is dependant on big equipment for its success or further expansion, consider bringing on investors to help you keep your financials more liquid. While loans are always another option to do this, investors can be a great alternative that offers their own unique set of benefits. Weigh both options side by side to see which is truly better for your bottom line and long-term goals.
5. You lack startup expenses. Sometimes the right time for investors is right from the start. If you are struggling to find the funds to get your business off the ground, investors can be a great way to get up and running on a professional scale. Be sure you have a well-presented plan in place before you approach potential investors. They aren’t going to give you their money without understanding and believing in what you plan to do. With the right efforts and focus you can get investors from the start and know that you’ve got the capital in place to get business going fast.