What You Need to Do Before You Pitch Investors

By Kimberlee Morrison

Opinions expressed by Entrepreneur contributors are their own.

Raising money isn't just about going to venture capitalists or angel investors. In fact, Scott Gerber said during his presentation at the Winning Strategies Conference in Long Beach today that most small businesses don't need as much capital as they think, and some don't need capital at all. Still others simply haven't undergone the proper assessment necessary to determine what they need.

So, how do you get money for your business and how do you know you're ready to get outside capital? Gerber shared three steps small business owners should take prior to pitching investors.

Step No. 1: Rethink Your Operations
Reducing customer payment terms and creating tiered pricing strategies are ways to inject some fluidity into your business's cash flow. Do an assessment of your infrastructure and labor costs. Can you go paperless or make use of internet-based software? Which bills or other remedial tasks can be automated? Try negotiating a lower price or longer payment terms with vendors. Doing an audit of your tax deductions can also help you find money where there was none before.

Step No. 2: Revise Your Spending Practices
Ask yourself what you can eliminate, what you can get for free and what you can borrow. Is there something you can barter with another entrepreneur for? Can your expensive equipment be leased or rented? The basic idea here is to figure out how to get what you need as cheaply as possible.

Step No. 1: Reassess Capital Needs
This is the step where you take a long, hard look at the amount of money you're seeking and assess whether you really need what you're requesting. Once you determine what you really need vs. what you want, break your plan down into steps with associated costs. For each product for which there is a cost, how many different uses can you think of? Gerber recommends finding three alternative uses for each product. Lastly, you'll want to seek out strategic partnerships. This goes back to bartering with other small-business owners. Whom do you know that you can team up with to get what you need?

Once you've gone through these steps, you'll have a better outlook on what you need for your business.

Kimberlee Morrison is the startup and finance channel editor for Entrepreneur.com.

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