ESYB2 066 - How Much Money You Need To Raise
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[00:00:00] Now let's talk about how to calculate how much money you need to raise for your business. And I know that you're thinking or you want to say, well, I'll take as much money as I can get. And you can think that, but you cannot say that, especially to investors or in a bank, or if you're in any kind of a formal fundraising situation.

If people ask you, how much are you looking to raise? You need to have a number. You can't say as much as you'll give me now. How do you come up with this number a professional way to calculate that number is to start by identifying a business milestone and Then figuring out how much money you will take to that milestone.

So a milestone might be a launch of your business. Let's say you have a mobile app and it's going to take you 10, 000 to launch it or something or have it built. So it's launch or even better if like, let's say you have launched, but you need 10, 000 customers or you need to reach like some kind of a revenue per month [00:01:00] number.

Like the example here is 5, 000 revenue a month. And so it's a concrete goal that you need to reach that after this goal, what has to happen is that you're going to reach a next business phase After which two things can happen, either you no longer need to raise money, meaning you're break even or you're financially stable, or you're able to raise more money.

For example, if you get to a certain amount of money, revenue per month, you can get business loans much more easily. Or if you reach a hundred thousand customers, you'll be able to get investors with that much more easily than if you have none. So that business milestone is not arbitrary. It's specifically designed to initiate a new phase of the business.

Now that you know how to choose your milestone, let's figure out how to calculate, how to get there. And really the first thing is, whatever you are going to estimate, I would double that or even [00:02:00] triple that because entrepreneurs are always way more enthusiastic about their business and about what's going to happen than reality.

So just to get closer to reality, just double whatever you come up with, double or triple You think you'll need and what you need to do is to create a cash flow statement. It sounds complicated I know but it's actually not complicated at all All that it is is an itemized list of money going in and money going out and then you can actually Calculate everything going in going out when you're gonna start getting revenue and you'll be able to calculate how much time how many months you'll need to get to your goal and how much money that will require.

So that's, that's exactly how much money you'll raise, you'll need to raise and maybe double that because your estimates might be a little aggressive. And so, when investors ask you, How much money do you need to raise? And then the follow up question, What will my money be used for? You'll have the [00:03:00] answer.

Perfect for them and not only the basic answer of how much money you're looking to raise but the smart things that you're going to be spending them on and I quickly want to show you what exactly is a cash flow statement. It's really simple. You see, you have your revenue and maybe reasons money is coming in here.

It's not listed because I don't know what your business is, but you might just note some numbers. If you haven't started, you'll have no revenue. But if you have started, you'll have a little bit of revenue from what you're trying to sell. And then you have your expenses. Usually, expenses are rent, utilities, employee salaries, legal fees, things like that.

And so you calculate it, and then you project. You see, let's say, you think it's going to take you 6 months to get to where you need to go. Well, you double that. You say 12 months. And to get to your milestone, and then you'll have that number. See, total expenses per month might be 17, 000, then you'll know, okay, I gotta multiply that by 12 because it's a year.

Or whatever you come up with. So you see, you can do this in Excel, but it's really [00:04:00] Creating a list of ways money comes in and out and then extrapolating that over a number of months that you think is going to take you to get to your goal. And that's a professional way to come up with the number of how much money you'll need to raise and what will that money be for.

You see in the expenses area, that's what the money will be used for.

