BIRD WILLIAMS: You're listening to Bird Means Business Episode 8. 

You might have a great business idea or want to take your business to the next level, but you need significant capital to make that happen. And by capital I mean money. So I want to start off by saying this. If you can self-fund or bootstrap your business. This is the thing you want to do. This means you wouldn't get into any debt or owe people, and you wouldn't have anyone else, owning a percentage of your business. So if you can self-fund, do that, like 100%. That is goals. But there are two things I want to add to that and they're a little bit controversial So, yeah, we're gonna just jump into it. 

First, if you do decide to use your personal savings, do not use all of it. The health of your personal finances are going to weigh heavily on your business. So if you're always needing to take money from your business, it will not grow. Terry and I took a very small salary from The League, for the history of The League. We've never taken a whole bunch of money from the business because we want to take the business's profits and reinvest it back into the business. So, if you use all of your personal savings and you're completely strapped, then you're going to be needing to take money from the business, so don't do that. When we were going through this process I remember investors saying we want y'all to have skin in the game. We don't want to give you all the money you need. We want you to have some skin in the game. We never actually put any of our personal savings into The League from the beginning. Outside of little things here and there, it was mostly funded by investors and we'll get into more details on that later. But we felt like we had a significant amount of sweat equity in our business, and we were the ones going to be doing it, going to be in there, making it happen. Our reputation was on the line. Those are the kind of conversations we had. But we did not like tank our personal savings when we started our business. So, going into this, you want to make sure you have a somewhat healthy emergency savings, personally, in case, everything went kaput or didn't work out. You still have something to go back to if you needed it to. 

A second kind of controversial thing is that if you don't have the money don't not do the business because you don't want to be in debt or have equity investors. We didn't personally have all of the money we needed to launch The League back in 2013. And had we tried to save for it we would have never ever started. We decided to go the debt investor route instead of the equity investor out because we wanted to own 100% of our business. But had we not raised that capital, The League would have never been a thing. So don't let the need to raise capital, stop you from even starting. 

So this episode is going to be meaty. You're going to want to take some notes, so grab a pen and paper. And if you're driving or doing the dishes just come back to this episode. So before we jump in, I want to share a listener shout-out why we're on iTunes says, "Ashley, can't thank you enough for the encouragement you provide in every episode. I love how in episode five, you said if something is not working out, then you need to change it right away. Love listening to you and looking forward to future episodes." Yes, y'all. Adaptability is probably definitely in my top 5 most important skills as an entrepreneur. why we're thanks for leaving that review. It's super motivating to know that this information is helpful to you. I wish you all the best in your business. 

Okay, let's get into it. So we're gonna talk about how much money you need to start your business, what are the different options for raising money, what is the right money raise process, how does that look, and then finally, what do you do after you raise money. 

Okay, so how much money do you need? So it's gonna bless your business's little heart, if you sit down and map out a projection of the revenues and expenses for your business, ultimately understanding profitability. So, don't freak out with the word projection. It's not set in stone. It will change. But you're going to at least have a sense of what your business will bring in each month, and what will go out each month. This is going to just help you get a picture of the financial situation for your business. Then once you do this you'll be able to see how many months, you will be in the red. This is when your expenses are going to be more than your revenue. 

So, you've probably heard that most small businesses fail within the first five years. Well, back in 2013, as I was preparing to launch The League, I remember hearing this, and I remember hearing the reason for this was that they run out of operating capital which is just the money that businesses need for daily operations for their business. And I know this kind of sounds like common sense, right? Businesses fail because they run out of money. But for some reason in that moment when I heard it put that way, it was like a light bulb went off in my head and I thought, instead of just raising the startup money we need to open the doors. I want to add six to nine months of operating capital to what we're going to initially raise from investors. So what you're going to do is you're going to figure out what your startup costs are, and then you're going to add six to nine months of operating capital to that. And you're going to know what your operating capital is because you're going to have gone through and sat down and figured out what your expenses are. So okay. These are my expenses each month. That times six to nine months, six or nine. You're going to add to the startup costs. So the startup costs are going to be the cash that you need to open the doors or launch the course or write the book or whatever it might be. And this is going to vary greatly depending on the business. But for The League, for example, you know, to start to open the doors and people can start working out there, we needed to have, you know, a computer at the front desk. We needed to have our website set up, our POS system. We needed to have all of our equipment. Our flooring. These are the kinds of things that we put into, okay this is what start looks like and this is how much money we need for that. And then secondarily, we put in, our rent, plus all these other expenses that we're going to have each month. We're going to add that in for six to nine months so that we have a cushion to help us as we grow. 

So what are the different options for raising money? I'm not going to get crazy here because this podcast episode would go forever long, and it can get super detailed. But here are some options. First family and friends. We wrongfully called our investors angel investors, but they were actually family and friends. It's funny because we've been saying we raised capital with angel investors and I actually just looked it up before I started recording. By definition, angel investors are accredited individuals with a net worth exceeding $1 million or annual income of more than $200,000. They typically operate alone but may team up with other angel investors and form a fund. So, our angel investors, most of them I believe had an annual income of more than 200,000, but they were not accredited, from what I know. So they weren't technically angel investors. They were family and friends. So we'll talk about the process in just a bit, but there's family and friends. There's angel investors. 

Next is a bank loan. So you could go to your local bank and get an SBA loan, a business loan. If you're going to be doing renovation you can get a commercial renovation loan. There's a lot of other loans out there. But be prepared to have to personally guarantee these loans, especially if you're just starting out and you have no historical financials. They're going to say, if there's not a building or something we can use as collateral, especially in that case, you're going to probably need to personally guarantee. That freaked me out in the beginning because we owned a home, but it was something that was pretty standard so just FYI. 

And then next option is venture capital. So this is a firm who will probably take more interest or equity. And will also want to have much more of a say in the day-to-day operations. So that was not a route we wanted to go because we wanted to run our own business ourselves, but it does work for a lot of other businesses. 

And then there's crowdfunding like something like Kickstarter. And there's also grants. So those are the different ways that you can raise money. Now we'll get into the money raise process. I'm going to go through the money raised process for both angel investors, and for a bank loan. 

So first thing you want to do is finalize your business plan. I know we've been talking about this a lot, but it's so important because you want to know what you're talking about when you go into having these conversations. If someone's asking you for money for their business and you ask them about how their packages tie with their financial model or what they plan to do with marketing and how it all works together and they don't have a good answer. You're going to be like, "I don't know if I want to give you my money." So start there with a good solid business plan. 

Next, you're going to update your business plan as an investor presentation and you're going to add a transaction structure page, which is going to lay out your startup costs, plus the six to nine months of operating capital. We also added in a 10 to 15% capital cushion just for a contingency plan. So that's going to be the final page of your business plan and we'll talk a lot more about this in my course, “Making Sense of It”, which is developing a profitable business plan. We're gonna talk about how there's so many ways you can repurpose your business plan. You're not going to give them this exact document. But you're going to edit it, update it, make it more of a presentation style and add this transaction structure page that's going to lay out all of the details on what you're offering them in this raise. 

So next, if you're going the family and friends route you're going to create a list of friends and family who would be interested in investing, or who would know people who are interested in investing. Next, you're going to practice your pitch presentation. So this is just basically you going through the slides of your investor presentation which again you repurpose from your business plan in front of an unbiased person who will give you great feedback. So I was joking the other night with a friend over dinner about how she would be the person I would have to do this because she was telling the story of how her mom is running for office, and she was just grilling her mom over her speech, like nope start over, nope that didn't make sense. I was like, you are the friend I would want to have grill me on a pitch, like before I had to go pitch to investors. You would be the perfect person. So you do not want a yes friend for this. You want to be prepared to answer the hard questions about your business. So you might ultimately be giving this presentation in person with investors or virtually maybe over Zoom, or even over a phone call as they're going through slides. So prepare for both routes. 

So next you're going to reach out to those people on your list, and you're going to let them know, "Hey, I'm starting an X business. I am launching a gym or I am relaunching my legal practice, or I want to grow my photography business. Would you be interested in investing, or do you know someone who would be interested in investing?" And I'd go the route of initially bringing this up in person, or over the phone before just sending a cold email, out of the blue. It's more of a sensitive topic so I wouldn't just like haphazardly bring it up. I'd be intentional about, looking in their eyes and saying hey this is something we're doing. And if they're not near you, then you know giving them a phone call and saying like, "Hey, can we talk about something next week?" And then having a phone call with them, as opposed to just sending this information over in an email. 

And then whoever responds with interest, have them sign an NDA. So this basically is like a legal requirement that they keep the information that you're going to send them confidential. This is something we sent to all of our prospective investors when we launched The League. Basically, we sent it to them. They sent it back over. And then we sent them the materials. 

I've had a friend tell me that an investor refused to sign an NDA because she was pitching in the tech industry, and they're kind of weird about signing NDAs because they hear a lot of similar pitches. I think that was a story. So, it is a possibility that you might run into an investor who would not be open to that. And so you just need to prepare yourself for how to respond in that situation. 

Okay then, the next step is your pitch, which is really my favorite part. I dress up, like put on a business suit or something, even if it's over the phone. I try to get a lot of good sleep the night before. I might listen to some trap music before. You got to do whatever you got to do. But you want to be on. You want to be ready. You want to be in your zone when it comes time to pitch your materials. 

After the pitch, you're going to follow up with them, and thank them for their time. You'll also probably have gotten a lot of really good questions from the investor, that you'll want to kind of revise your investor presentation around and figure out for your business. So this is the cool part about this whole process is that they're grilling you and they're kind of just making you and your business better. So, before you go on to the next presentation, if they asked a really good question you can say, ooh, I need to add that to the presentation or I really need to think through that question and how that's going to fit in for my business. 

So once you get that email or call that says, "Hey, I'm in." You are going to lose your mind and you are going to jump around and do a happy dance and go celebrate. Do whatever you want to do. And you're going to also have them sign an investor agreement, which is going to lay out things like what they can expect in terms of communication from you and how and when you'll pay them back, that sort of thing. You're also going to list a soft close and a hard close on that transaction structure page that I mentioned. The soft close is the deadline that you need their word on how much they're going to invest. The hard close is when you need their check, like when the money needs to be in the bank. And you're going to communicate that from the beginning so that they know hey I need your word by him, by this date, and then I'm going to need the actual money by this date so that I can like launch my business on time. 

Now if you're going to go the bank route, it'll look a little bit different. You're going to go to a bank that you have a relationship with or history with. You're going to tell them, "Hey, this is what I'm trying to do. This is the business I'm launching." And ask them what they need from you. You're going to have your business plan completed before you ever go talk to a bank representative so that you're able to really answer any question very confidently. They will mainly care about the numbers, which makes it very hard for a business with no historical financials. And like I said you'll have to personally guarantee it, and may even have to get an additional guarantor for this loan. So just be prepared for that. The last thing is you don't want to wait until it's too close for you to actually need these funds. We had people tell us, "Yeah. Put me down for 10K. I got you, I love you guys." And then when it came time to actually collect the cash, crickets. Ouch. Plan B. That actually drove us from just doing family and friends investment loans, to go into a bank. That was when we had to go to plan B and go to a bank and get an SBA loan. So just make sure you have time for this process because there could definitely be some surprises. 

Okay, what do you do after you raise money? Now I want you to listen here because this is super important and I want you to focus on it because it's a mistake that we made that I don't want you to make. After you raise money, add a payback schedule to your business plan or your financials or your business budget or whatever. Because see, we were caught up in all the things. It was kind of crazy leading up to the launch. We were getting really close to our launch date and actually needing these funds. We had to go to that plan B route of going with a bank. Then we're trying to bring in the equipment, all the things, it was just crazy madness like any launch is. And then we actually launch, and then it's like, all the things post-launch. And then, on and on and on and we never really nailed down an aggressive payback schedule. And had we done that we could have been much more proactive about the payback and completed it much sooner. So if you raise, $10,000, and you have to pay back that principle by in two years. That's $417 that you need to put away, automatically, each month, in a separate account, that you don't see every day so that it's there when you need it in two years. 

Okay, that was a lot. I hope it was helpful to you. If you're thinking, wow, I know I need to raise money for my business and I do not even know where to start. I got you. I've created a free guide. It's called "Ready, Set, Launch". It's the first 10 steps to launching your business. So you'll get a step-by-step checklist of what you need to do and I promise you'll feel more confident about all of this. 

Also, if you're interested in starting with a business plan and you think that's something you really need, and you love my guidance as you walk through that process, “Making Sense of It” is my four-week online interactive course on developing a profitable business plan. Registration actually opened today so you have 10 days to register for the course. There are limited slots available. I'm super excited about opening up our private Facebook group to all of those who are going to be in the course. I'm going to do a weekly Q&A. It is just going to be really fun. I think it's going to be great. A lot of the clients that I've worked with really need to start with this first step. And so if you're interested, go to the link in the show notes, there'll be a link there for the course. Also, if you want to go to birdwilliamsconsulting.com you'll see all the information there as well. 

All right. Thank you so much for following us on Spotify, subscribing on Apple Podcasts, and for telling your entrepreneur friends about Bird Means Business. Talk to you next week.