If you’re in the market for startup financing, you’ve probably come to the realization that bootstrapping your business just isn’t going to work over the long term. While that can be true for many business owners, I suggest you bootstrap for as long as you possibly can before applying for startup financing. There’s much responsibility and pressure that comes along with obtaining any type of startup financing, whether it be debt or equity financing. Before you take the leap and start applying for startup financing, it would be wise to determine if you’re absolutely ready. If you’re unsure of how to figure that out, here’s a list of six signs that can serve as proof that you aren’t ready to apply for startup financing.
- You Don’t Have a Business Plan – A business plan is critical if you are applying startup financing. Some lenders will want to review your business plan and so will any investor you approach. The part of the business plan they will focus on the most is the financial projections. You should have at least three years of financial projections. I strongly suggest you work with an experienced accountant or banker to develop your business plan and financial projections (if you haven’t already done so). Not only do they understand the functions of business, they also understand numbers. Any lender or investor you approach will know whether or not your financial projections are realistic (or unrealistic) and they won’t hesitate to tell you.
- Your Personal Credit is Pretty Bad – Less than perfect personal credit will always slow you down if you’re applying for startup financing (but it doesn’t have to stop you). Cleaning up your personal credit will take time. However, if there are a few things you can do to improve your credit score now, do it. It will put you in a better position to obtain startup financing in the future.
- Your Business Model Isn’t Solid – If your business model isn’t necessarily working, back to the drawing board you go. A non-working business model means your process of getting customers and delivering your product or service isn’t working how you envisioned it. For example, if you don’t have a good value proposition, you’ll have a hard time convincing people to buy whatever it is you’re selling. You value proposition is a part of your business model. No sales, no revenue. Obtaining startup financing from an outside source isn’t going to help that.
- Your Revenue is Inconsistent – If you make $10,000 in one month and the next month you make nothing, that’s a problem. Unless your business is seasonal, you’ll want to figure out how to generate revenue consistently before you apply for startup financing. If you apply for debt financing, you’ll be required to make monthly payments towards the debt (in most cases). If you’re business isn’t consistently generating revenue, it could become difficult to make those payments.
- Your Business Has No Revenue – If you have less than perfect credit and your business isn’t generating any revenue, you won’t have many financing options. Until the business is generating significant revenue (every month) or you improve your credit history, bootstrapping will be the best way to fund your business.
- You Don’t Have Any Personal Income – This is pretty much self explanatory. Taking on debt when you don’t have any personal income isn’t smart and likely isn’t possible. If you don’t have a full time job or you aren’t earning income from your business, you’re definitely not ready to apply for startup financing.