During the business plan phase I quickly realize that I was going to need more money than we had to invest in the business. Instead of assuming the risk of a business loan I chose to transfer the risk to investors. This made sense to me because I had just resigned from my job and planned to stay at home with my daughter. I had every confidence that Bot Tots was going to be a success, but SBA loans were down by 40% and most were going to high tech businesses, so I new my chances were slim.
I consulted with my SBA coach who gave me some great advise. After reviewing my financials he suggested that I create projected profits for at least three years under different scenarios for my investors. One very interesting thing about financial projections like profit and cost projections, is that although they're based partly on research in the industry you are trying to break into, but they're really just a best guess. I determined that I wanted to secure .05% of the aggregate children's apparel market. That may seem small, but it equaled a large annual profit when successful. The great thing about the children's apparel industry is that it is highly fragmented with its biggest competitors only securing about 20% of the aggregate market.
So my financials were reviewed and approved by my SBA coach. The next step was to determine what kind of return I wanted to offer my investors. I initially came up with the idea of 1% for every 1,000 dollars invested. My SBA coach suggested that investors get rewarded for growth of the company (since they really weren't traditional investors in that they didn't actually own a portion of the company, but were just given a promise by myself that I would share a portion of my profits during the time period indicated in the investment agreement). So it was determined that investors would receive an increase of .25% of profits for every 10% the company grew after the first fiscal year.
So with my business plan done and printed, my financials in order, and my offer to investors I sent about ten packets out to people who had expressed an interest. Most were impressed with the business and invested!!
Currently, I have a secret number that I know Bot Tots will reach. I already have the checks written out to all my generous investors and I cannot wait till I am able to send those checks. My investors will be happy to see all those zeros!
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