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Three Tips to Raise Money in a Tight Economy

From purchasing equipment to paying a web developer and beyond, the costs of launching a business can quickly add up. So can growing a business. Let's face it, hiring skilled people and investing in the right technology doesn't come cheap, either.

Unless you're independently wealthy, entrepreneurs usually have to hit the banking and investor circuits in search of loans and other startup funds. It can be a tough task, especially when the credit markets freeze up like they have during the recession.

"Many investors cannot predict when the economy will return to its go-go growth days, so they are skittish about committing too much money to investments in young companies that tend to be hard to monetize," says Asheesh Advani, the Boston-based author of Business Loans from Family & Friends. Advani will be speaking about landing angel financing, insider financing and venture capital during a session at Entrepreneur's 2011 Growth Conference Jan. 20 in Atlanta.

Advani says that although the overall environment for starting a company and raising capital is better now than it was during the bleak economic environment of 2009, the market hasn't seen much improvement over the last several months. Does this mean budding entrepreneurs should sit on their business ideas until the economy makes a complete rebound?

Not necessarily. Here, Advani shares his top three tips for raising money to get that business off the ground right now.

1. Use crowdfunding sites. There are now dozens of services that can help you raise small amounts of capital online. Crowdfunding services allow entrepreneurs to ask friends, family members and others within their online communities for financial contributions to their business. Some examples of these types of sites include Peerbackers.com and Profounder.com. Using crowdfunding sites can help raise some money while building online buzz. They also allow you to share your company's fundraising story with your friends and family in a less awkward manner than if you approached them in person.

2. Hire people who love your business. While this technically isn't a way to bring in capital, employees who are passionate about their jobs are willing to work for less and care more about the results of their work. It's better to raise half as much capital and hire passionate employees rather than secure all the right funding but hire less-productive, less-passionate employees even if they have great resumes.

3. Leverage insights from your financials. Develop a habit of forecasting your costs and revenues every quarter, which is especially important during a tight economy. If you are within 5 percent of your forecast, you are better off than most small companies. If you are off by 50 percent or more, you should avoid raising capital from anyone until you develop a more accurate way to predict your company's performance.

Jason Fell is the managing editor of Entrepreneur.com.

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