How to find and court an investor
The idea of obtaining non-banking money to fund a business is not a novel approach; small and large businesses have done this for years. For would-be and current detail shop operators, it represents a real channel for growth and success.
Over the past few years a new term has emerged to describe this source of funding: Venture capitalist. The catch-all phrase describes a person or company that provides the capital to finance a startup company, and in some cases to assist an existing company, to expand.
Know what you are looking for
In my years as an operator, consultant and supplier to the detail industry, I have talked with many detailers either looking for an investor to help them establish or expand their business or those who have a person willing to invest in their company if they can give the investor a plan for the business.
Often times, the detailer has no idea how to attract and locate investors or, once found, how to present their idea to the investor in such a way that results in the needed capital.
So, let’s start at the beginning and move to the final presentation that convinces the investor to provide you with the monies you need.
Know what a serious investor looks like
The first thing to do before seeking investors for your detail business is to understand what they are going to be looking for. Today, a serious investor is looking for a minimum return of 15 to 20 percent on their money. For example, if they loan you $50,000 to establish or expand your detail business they are going to want a return every year of at least $7,500 to $10,000 on that investment.
The best investor is one who can provide you in excess of $100,000. At a 15 to 20 percent return, that is $15,000 to $20,000 per year. They can’t get that by putting the money in the bank and they can’t be sure they will get that in the stock market.
The key to attracting individuals who might have the money to provide capital to aid you in establishing a detail business or expanding/growing your existing business is to show them the opportunity they have to make a nice return on their investment.
As mentioned, there are a number of ways that an investor can make a return:
One way is to invest a certain amount of money, say $50,000 to $100,000, on which you guarantee they will receive at least 15 percent to 20 percent or more on the money per year. Often they will want collateral to secure the loan to you (property, vehicles, etc.).
A similar agreement to the one already mentioned, but the investor also receives a portion of the profits from the business, is where the investor buys into the business and owns a percentage of your detail shop. Many investors are shrewd enough to want either a 50 percent share, or more likely a majority share. What you do is relative to how bad you want the money.
Know your average revenue
The bottom line is that you have to present a business plan that shows how your detail shop can generate $40,000 to $50,000 per month in revenues and $8,000 to $10,000 a month in profit.
This means proving that your business is capable or is already performing an average detail service of $150 for 250-330 cars per month. On a weekly basis, it breaks down to 60-80 cars or 10-15 cars per day.
Create a business plan
Your investors will want to see a realistic and believable business plan that shows where these cars will come from. Include information you currently have on the following customer types in your area:
- Retail customers;
- Auto dealers — new and used;
- Body shops;
- Motor homes;
- Over the road tractors; and
- Agricultural equipment.
- Paintless dent repair;
- Paint touch-up;
- Vinyl and leather repair;
- Window tinting;
- Carpet dyeing;
- Body side molding and pin striping; and
- Gold plating.
- Know your business;
- Have thought out the plan; and
- Have selected a location that will allow you to attract the required customers to achieve these numbers.
You can also hire someone to assist you in developing a fool-proof business plan and then search for potential investors.
Finding investors is often much easier than putting together a believable and realistic business plan. To make it simple you can find investors among your relatives, friends, extended circles of friends, people in your church (if you belong to a congregation), and customers.
That’s right, many detailers have told me they have a customer who approached them about investing in their business, but they did not know what to do or how to make a presentation.
You can also advertise in the “Business Opportunity” section of your local newspaper. In a small ad, indicate you are seeking investment capital to establish or expand an existing auto service business that is without competition in the area. You might mention the amount of money you are looking for (think big, not small) and even what return you will offer. Or you can keep it general to attract more potential investors and see what they are looking for and if you would even want to associate with them.This is very general but it gives you an idea of what you can do to find the money you are seeking for your business. Happy hunting!
R.L. “Bud” Abraham is president of Detail Plus Car Appearance Systems, Portland, OR, and a nearly 40-year member of the car care industry. He is also a member of the Western Carwash Association Board of Directors. Abraham can be contacted at email@example.com.