As with any new business venture, if you do not already have sufficient capital to make the changes you will need to find the money.
Money can be raised through various means, such as borrowing from family and friends, through venture capital investors, taking on a new partner or by approaching a bank or lending institution.
When borrowing money from family and friends, you may not always need to give them a formal finance proposal, but this will definitely be required for finance institutions, prospective partners or investors.
A formal finance proposal takes the form of a business plan and includes all information necessary to evaluate the proposal’s potential.
It is extremely important that your business proposal is accompanied by realistic facts and figures.
Many of the online businesses floated prior to the stock market downturn contained unrealistic or overblown figures and projections. They gave the impression their creators considered them instant wealth generators and were based on dreams rather than reality.
Unfortunately, this has tarnished the image of online businesses and you will have to be careful to show you are serious about the viability of your online venture with careful consideration of all the issues.
Business plan features
Your business plan must show how you will integrate your online venture with your existing business. It should also detail how this integration will impact on your existing business and the benefits.
Additionally, it must detail how much money will be required, how you plan to repay your loan and predictions of when the online venture will start to make money.
A business plan essentially includes the following features:
- An executive summary
- Current business information
- Market analysis
- A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis
- An action or strategic plan
- Financial details and budgets.
Once you have your business plan completed, you and the financial institutions will be able to clearly see the viability of this online expansion.
Entering the stock market
Another method of raising money is by floating your business on the stock exchange.
Most of the recent dotcom and dotbomb publicity concerns the frequently speculative businesses that raised money through stock market floats.
This doesn’t mean that you shouldn’t consider this approach. It means your business plan must show you have a strong probability of proving successful.
Should you decide you want to raise finance through the stock exchange, you will have to approach your accountant and a stockbroker for specialised help.
Creating a budget
When determining your budgets, as with all budgets, it is useful to create at least three, taking into account the range of possible outcomes.
It is best to create these budgets to take into account:
A worst case scenario
Your anticipated scenario
Your best case scenario.
These budgets will show how each scenario will financially impact on your business. With this information you will be able to determine how to react in each case. It will also provide you with a useful means of tracking your actual business performance against what is anticipated.
With each of these scenarios you will need to determine particular levels of achievement or critical success factors to assist you in determining how well you are performing.
These may include factors such as:
The number of sales to online customers
The daily/weekly/monthly income you gain from your site
The time taken to achieve a particular level of income
The amount of income derived from your affiliates or adverts displayed on your site
Costs associated with maintaining your search engine position, etc.
Each business will need to assess its operations to determine useful factors for benchmarking its progress.
This is necessary since the nature of the Internet means rapid changes can take place. To take advantage of positive changes, and to minimise the negative, you will need to react quickly and appropriately.
Budget warning bells
If your online business is not performing to expectations, you will need to know the early warning indicators and how to react. It is also important to realise that it is highly unlikely your business will immediately do phenomenally well. The majority of online ventures don’t.
You must be patient and realise it could take a number of months before you start to see a return from your site. Your budget must, therefore, take this into account. You will need to allocate funds to carry your business if necessary.
Your budgeted financial projections will be useful to help you track anticipated performance against what actually occurs. For example, if you predicted a three per cent increase in your turnover, and your actual results show you are not achieving this, you have an early indication that you might need to reassess your strategies.
Creating financial forecasts can be time consuming and tricky. This is particularly true when creating three forecasts to deal with something as unpredictable as Internet trading.
There are a multitude of possible outcomes and influencing factors. Therefore, it is important to consult closely with your accountant to make sure you have considered all factors.