QUESTION: My husband and I have a successful facility that we opened just over 4 months ago. We want to expand into new locations but need the capital to get it going. Any knowledge on who to reach out to?
ANSWER: Congrats on the success! However, 4 months is very early in a business cycle (to show proof of concept) so outside funding will be difficult. In general, institutional money (the private equity world I’m associated with) won’t fund single entity businesses (they’re looking for the $5mm businesses that they can turn into $100mm) which is obviously the dilemma start-ups face… that being said, friends and family are the first place to start (they generally have the best terms:) Also, current clients that enjoy your service is a great place to start as well.
I would recommend first putting together a business plan (if you haven’t already) that details your business, the marketing strategy, and the start-up cash needed (basically how much you are looking for- both the start-up cost and potential burn rate when you open the door). Obviously having done it already, you’ll have very accurate numbers… and of course make sure you have clean books and financials so that you can show a potential investors proof of the numbers.
Obviously track your leads, make sure your marketing campaigns are working, how many of those leads convert to paying customers, etc. having books that show growing profitability along with market data on leads and conversions will go a long way with an investor… anyone that is not a friend/family (and just investing in a vision) will want to see hard data that supports your revenue forecast.
It takes time to open up new locations, don’t try to do too many at once. If the current location is indeed successful, maybe hold off on the personal spending (make sure you guys are budgeting at home!) and put some of the profits aside for the new location. I’m assuming the capital investment wasn’t huge so it shouldn’t take too long to save yourself, you just want to make sure you have a plan in place, and stick with it!
The other option is a line of credit from the bank you currently have a relationship with- right now rates are still relatively low (but only increasing, so now is the time to lock in a rate!). Start with a second location, prove it is repeatable, and use the profits for the third location, etc… when the concept is proven and repeatable, you can then go to institutional funding.
Without having much detail, it sounds like friends/family or your local bank will be the most realistic options today. In the near future, there could be some high net worth individuals I know interested, but it’s just way to early… but either way ensure you have the plan and books in order, and start collecting that marketing data to prove your revenue forecast is realistic!