11 Mistakes To Avoid When Raising Funds For Your Business
The eCommerce industry in India is booming. The industry has tremendous growth potential in this country —- it’s projected to reach USD 16-20 billion in FY2025 with a CAGR of 55-60%. Needless to say, the market is seeing an influx of new players every other day. This means that there is tough competition between brands for setting up their base and raising funds. While investors are becoming more stringent with the review process before closing deals, many eCommerce brands opt for growth financing —- the new-age business funding method for kick-starting eCommerce business.
However, there are certain things that you must keep in mind for easy and hassle-free approval of the finances. In this post, we will share some common eCommerce business fundraising mistakes companies should avoid.
Common Mistakes To Avoid When Raising Funds
There are multiple ways to raise funds in the market that can help you get access to necessary capital to scale up your eCommerce business. However, making these common mistakes while raising funds can delay the process or even deny you the funding. Know them beforehand so that you don’t make the same mistakes.
1. No Business Plans
Whether you are approaching a financial institution for raising funds from a bank, a venture capital, an angel investor, or a company offering growth financing, you need to present a strong business plan. Without a proper business plan, getting funding approval is difficult.
A business plan ideally helps an investor understand how you will utilize the money and how you plan to repay the loan. Including pointers like revenue projections, your unique propositions, and how you will do things differently from your competition in your business plan can give you an edge to secure funding.
2. No Financial Statements
Having no financial statements is another mistake that first-time entrepreneurs often make. Avoid making this mistake. Hire an accountant to keep a track of every penny you earn or spend. Be thorough and honest with your financial statements. Involve your accountant in all your financial decision making and let them be a part of your funding search. Your financial statement acts as a catalyst while raising funds. The stronger your P&L is, the higher your chances of successfully raising capital.
3. No Business Partners
All financial institutions want to see entrepreneurs approaching them with a team or at least one partner. This gives them the confidence that if the entrepreneur is unable to accomplish the goals due to any unknown reason, there’s a team that’s working hard to achieve those goals. So, always have a business partner who must have decision-making power and a substantial financial stake in the company.
4. Underestimating Or Under-calculating The Money You Need
Calculating the right amount of money you need while raising funds is important. This shows how meticulous you are in your planning and how detail-oriented you are. These are some indispensable qualities of a strong entrepreneur.
Meanwhile, also remember to add charges like license fees, loan fees, and other hidden costs to your funding amount so that you don’t run short of finances if and when the capital is authorised and disbursed to you. Underestimating or under-calculating the money might be a big mistake if not paid attention to.
5. Not Researching Potential Funders
To increase your chances of raising funds, do your homework well. Remember, each funding agency might prefer investing in a specific industry. For example, if you’re looking for funding for your eCommerce business, Gokwik may be a good option to consider. They offer growth financing to eCommerce brands up to INR 5 crores for about 12 months with zero hidden charges and no additional cost.
Similarly, some investors might have already invested in your competitor, so there can be a conflict of interest if they find your business and hence, may back out. Researching and approaching the right financing institute increases your chances of raising funds.
6. Taking On Too Many Business Loans In The Past
Taking too many business loans in the past can hit the credit score of your business, unless you’ve successfully re-paid them back. But if not, this can impact the possibilities of your firm raising funds in the market.
A credit score is an important parameter that lenders often look at while reviewing your company’s loan application. So avoid taking too much debt. The cleaner your acts are, the higher are the chances of getting capital investment, easily.
7. Not Having A Plan To Spend The Finances
Investors, banks, or growth financiers are investing in your eCommerce business to make a profit and get their money back. So they would like to know how you are investing their money. While GoKwik stands apart in this case. It doesn’t ask for any business plans and understands discretion. But, if you’re choosing other forms of fund raising, having a plan becomes a necessity.
8. Opting For The Wrong Kind Of Financing
There are different types of fund raising options available on the market today. Knowing your options well before securing one is highly important. This will depend largely on how you want to see your business. If you prefer more control, debt financing is a better option. If you are okay with diluting shares against receiving the expertise of the investors, then go for equity investors.
9. Waiting Too Long To Get Financing
Don’t wait for that perfect moment to reach out to raise funds for your business. Whether you need to expand your business activities, streamline processes, or hire more staff, do it now. Because, if your revenue starts declining, it won’t interest an investor or a bank to invest in your business.
10. Excessive Operating Expenses
Whether you are a startup eCommerce company or an established one, operating expenses can quickly eat up your cash flow. This becomes a bigger problem if you are a startup and haven’t started generating revenues yet. Operating expenses include licensing fees, initial inventory purchase, sales and marketing, technological investment, etc.
Conclusion
While raising funds can help skyrocket your eCommerce business, proactively avoiding these mistakes can save you a lot of losses as you scale up your business. If you’re looking for a capital to support your business, GoKwik’s growth financing is what you need.
GoKwik’s mission is to empower Indian eCommerce businesses to move forward. It doesn’t demand equity or collateral with zero upfront fees and hidden charges. It’s a good rund raising option for eCommerce businesses looking to expand.
Want to know how you can leverage it? Get in touch with us.
