Business

Finding An Investor For Your Business Idea – How To Start A Company Even Without Equity

Finding An Investor For Your Business Idea – How To Start A Company Even Without Equity

Today, more and more people are venturing into professional self-employment, through which they hope to achieve financial independence and freedom for their own business projects. However, starting up a business is an important new start, for which the founders have to prepare themselves very well in order to start successfully and to assert themselves against the competition. Many of them can find an investor and profit to a large extent from his supporting hand. Here are a few tips on how this can be achieved in practice.

What is a business start-up?

Starting up a business is a step towards professional independence. This can either be a

  • freelance or
  • trade activity

trade. There are various legal forms available to the founders for entrepreneurial activities. Freelancers and sole proprietors usually opt for the trade or the partnership under civil law (PuCL). In contrast, the founders of start-ups prefer the limited liability company (LLC) or the entrepreneurial company (EC).

There are various motives for becoming self-employed. Young people in particular often talk about their disappointment at work and no possibility for self-realisation, which today is an important factor alongside wages and financial benefits. Older people see a worthwhile alternative to employment because they can offer customers real added value through their many years of professional experience and their professional know-how. Last but not least, the founders hope for more income.

How can an investor be found?

Only rarely can the founders finance their business idea with their own capital. In most cases, they are dependent on outside capital, which is provided in a certain proportion. Here the rule applies: the higher the financing requirement, the more cautious the investors are. However, their willingness to finance depends not only on the percentage of equity capital, but also on the respective business idea and the current market development. There are many ways to finance the start-up of a business. This is how an investor can be found:

  1. Credit: Many founders first think of a company loan when they want to find an investor. Primarily cooperative and private banks are suitable here. PCL is also a possible alternative. It is advisable to contact primarily cooperative banks such as savings banks and Volksbanken, because they are active in the public sector and attach great importance to local economic development.
  2. Subsidies: A good option for the financing of business start-ups are the subsidy programmes. Their primary aim is to promote the entrepreneurial spirit among certain social and age groups and thus to counteract unemployment. The subsidies include the start-up subsidy from the Federal Employment Agency and the subsidy check for founders and the self-employed. The funding database is a good source of information.
  3. Partnership: If you are thinking of starting a larger start-up and have a business partner at your side, you may consider a partnership. This business partnership, which is more likely to be long-term, can be either an active or a silent partnership. In the first case, the partners become involved in the company, while in the second case they only acquire shares in the company through their investment. Promising high-tech start-ups can quickly find an investor.
  4. Crowdfunding: Some founders see great financing opportunities in crowdfunding, which is becoming increasingly popular. Although the publication of a business project on a crowdfunding platform seems simple and straightforward, there are a number of legal aspects that need to be taken into account in this form of financing. It must be clarified whether it is an investment or a gift and how liability with private assets is regulated.

Business plan as a success factor for the search for investors

A creative business idea alone is not enough to start successfully as a founder. If you want to find and convince an investor, you must have a well-designed business plan. A carefully worked out business plan is an integral part of every business venture. Very often it decides on success or failure by pointing out both strengths over the competition and potential market risks. The business plan is prepared at the beginning of the planning process and provides a valuable overview.

It starts with an executive summary. It then goes into detail about the business idea and strategic priorities. A great deal of attention is also paid to the sales offer, i.e. the product or service. The business plan should also not underestimate the organizational structure and the regulation of competencies. Just as important are marketing and sales as well as market and competition. The business plan must also include the legal framework. Founders who want to find an investor have to announce budget and process flows.

How you can convince investors

Finding an investor sounds difficult for many founders, especially if they want to start their first business and have no practical experience of self-employment. Although a well-designed business plan is half the battle, reality shows that its implementation is not so easy. Every investor who is anxious to finance only the business idea with the best potential for economic success and competitive advantage knows this. So how can an investor be convinced and won over for his own project?

A bankable business plan is an absolute must for a personal meeting with the investor. For this reason, it is worth taking sufficient time to prepare a complete business plan. But that’s not all: every founder should have a solid knowledge of the market potential and an anticipated market development. Market size is also relevant for the assessment of business opportunities. In addition to customer and partner relationships, the competition analysis can be an important point of discussion.

How to find successful investors

Convincing an investor is a great challenge for all founders who are taking the step into self-employment for the first time. This is because they are faced with the unknown and are uncertain whether they will be able to master operative business and counteract possible financial bottlenecks in time. An unstable market situation and rapidly growing customer expectations also cause feelings of anxiety. Quite unnecessarily, because the founders can find an investor with a promising business plan and finance their business project.

Determining Company Value – How Much Is Your Company Worth?

Determining Company Value – How Much Is Your Company Worth?

If a company is acquired against payment, the goodwill of the purchased company must be shown in the balance sheet of the purchaser. The goodwill, also known as goodwill or enterprise value, is not a physical object. The balance sheet item is one of the intangible assets of a company. It is reported on the assets side of the balance sheet under fixed assets. For this reason, forecasts are also largely used, which ultimately represent goodwill. Why it is important to know your own goodwill is explained in this article.

How is goodwill defined?

The definition of goodwill (DoG) is derived from the provision of ยง 246 paragraph 1 sentence 4 of the UK Commercial Code. According to this provision, the GoF represents the difference between the total value of the company and the sum of the individual assets minus the debts at the time of the takeover. If there is original goodwill, the own company has created it itself. In this case, the goodwill is represented by the customer base and the brand of the company. Derivative goodwill was acquired for a consideration.

The relevant factors for determining goodwill are the value of the entire company and all assets and liabilities. If the calculation results in a positive value, this is called goodwill. If the enterprise value is negative, it is badwill.

Goodwill plays an important role when selling the company

Goodwill is only determined if a company is sold in its entirety. When parts of the company are sold, goodwill is often used to determine a purchase price. In addition to the value of the company and all assets and liabilities, a company value is influenced by the following factors:

  • What are the future prospects for the company?
  • Which competitors must be kept in mind?
  • Which technological changes must be reacted to?
  • What does the company’s product range look like?
  • Can the company stand out from the competition? If these questions are answered in the negative, the company’s valuation is worse.
  • What does the company’s customer structure look like? Is there a broad customer base with which the company is well positioned?

Answering these questions can be decisive for the sale and can play an important role in determining the company’s value.

The determination of goodwill

Goodwill can be determined in various ways. The capitalized earnings value method and the Ebit method are presented.

The capitalized earnings value method

If the capitalised earnings value method is applied, goodwill is measured according to what an investor can earn from the purchase of the company. The average of the earnings from the last three years and the forecast earnings for the next three years form the basis of the calculation. The total income is divided by the capitalization interest rate. The capitalization interest rate is made up of the base interest rate and a premium for the entrepreneurial risk. If a small business is to be sold, the interest rate is between ten and fifteen percent. If the average proceeds amount to 1 million GBP and the entrepreneurial risk is ten percent, the enterprise value is 1.1 million GBP.

If the business value is determined in this way, there are two disadvantages. Future earnings are difficult to predict. The interest rate cannot be determined objectively.

The Ebit method

In the Ebit procedure, the profit of the company to be sold plays a decisive role. To determine the goodwill, the profit is multiplied by a factor. A profit of 200,000 GBP and a factor of 4 results in a goodwill (Ebit) of 800,000 GBP.

The applied factor depends on the industry. It is recalculated at regular intervals.

The amortization of goodwill

Positive goodwill can be amortized between five and ten years in accordance with the provisions of commercial law. How long the actual amortization period runs is at the discretion of the company. If there is a permanent reduction in value – the purchased company proves to be unprofitable – the strict lower of cost or market principle must be observed. This means that the DoG is to be written off unscheduled.

What is the relevance of goodwill for entrepreneurs and investors?

Every entrepreneur wants to know what his company is worth. Especially if you as a self-employed person want to sell your company, what you get for your company. There are different ways to look for a buyer.

Databases and networks provide information about solvent managers who are looking to run their own business. The entrepreneur can also look around at his competitors. For the acquirer, the offer is worthwhile from two perspectives. He owns a company that suits his industry and has one less competitor. To be in a better negotiating position, the seller should make more than one offer. If his company has a good business value, this strengthens his position.

Important facts about goodwill

If a company or shares in a company are sold, the goodwill must be determined. The GoF can be determined using the capitalized earnings value method or the EBIT method.

Goodwill is determined by comparing the value for the entire company and all assets less liabilities. In addition, the factors future prospects, product range, customer structure and personnel are important parameters.

Goodwill plays a decisive role for entrepreneurs and investors. The higher it is, the better the company is positioned. This is a benefit for both sides.