Five Reasons Businesses Fail To Secure Funding

Five Reasons Businesses Fail To Secure Funding

According to data from StartUp Britain , a record 80 new companies are being created every hour in 2016. Between January and June this year, 342,927 new businesses were registered with Companies House – compared to 608,110 during the whole of 2015.

This means we could be looking at a record year for start-ups, bringing to light our country’s great entrepreneurial enthusiasm. However, it also means there is more competition for those seeking funding and investment. New businesses will, therefore, want to give themselves the best possible chance of getting funding, but what are the reasons why some businesses fail to secure the finances they need? Here are just a few:

1. They Don’t Understand Their Financial Situation
Finances are a fundamental part of starting a business, so if they’re not right it will be difficult to win people over. The overvaluation of a business is one mistake that may be meant as an attempt to impress investors, but ultimately shows a lack of understanding that throws a person’s expertise and credibility into question. Entrepreneurs need to understand their worth and be realistic about where they are starting out and what they can achieve within a reasonable time frame. Huge figures will not be as impressive as realistic ones.

2. They Don’t Explain Why Their Product Matters
Excitement is infectious, and if a business owner is passionate about their idea, they can spur on the people around them. Part of the belief in a product or brand is knowing that it is going to fill a need, that it solves a problem and that the target market is going to love it. Failure to secure funding can sometimes be down to investors feeling unconvinced about the product or the team behind it.

3. They Don’t Have A Clear Strategy
Where is your place in the market and how are you going to get there? Not only do you need to prove that there is a you-shaped gap in the market, but you need to show you have a roadmap for getting there. Lenders don’t only need to know how much money you plan to make, but how you’re going to do it, so they can decide whether or not you’re a safe bet.

4. They Haven’t Researched Potential Investors
Not every investor will be interested in every single business idea, so it’s important to do your research. No matter how good your idea and plan is, if they’re not interested or if the business doesn’t operate within an industry they are familiar with, there may not be anything you can do to convince them. Make sure you’re pitching to the right people.

5. They Don’t Have A Business Plan
Turning up to investment meetings without a business plan – or with a poorly written one – is a bit like offering to bake someone a mystery cake with whatever ingredients happen to be in your fridge. You could be planning to use a traditional recipe involving eggs, sugar, flour and butter to create a nice sponge cake, or you could be using two cups of salt and expired milk to create a big mess that leaves a bad taste in their mouths. Who knows if you even have an oven? Without your business plan they just don’t know, and for lenders and investors, it’s all about risk assessment. If you’re too big of a risk, you’re unlikely to get the funding you need. However, you can mitigate perceived risks by providing all the information investors need to make a fair decision about whether to back your start-up.

There are many different reasons why new companies might not receive the funding they need, and these will vary depending on the individual businesses, their circumstances and how they are seeking funding. However, once you know what the potential pitfalls are you can work towards avoiding them, and over time, becoming another successful start-up story.

Share this blog