Growth strategies: for a good or challenging economy.

• Author: De Puy, John
• Position: Private companies

What's the best way to finance a promising private company in a good or challenging economy?

About 65 percent the nation's gross national product is produced by its 25 million small-business owners. Roughly 8 percent (or two million) small businesses in the United States fail every year and another two million then start up.

Why do so many small businesses fail? What is the driving factor that leads others to succeed? The answer usually boils down to the fact that many firms are undercapitalized.

If a small business is successful in defining its market niche and has the right management structure, it can usually raise the money it will need to grow and achieve success.

Take an Assessment

Before small-business owners attempt to raise money, they should take an assessment of their economic situation by asking the following questions:

* Does the business plan call for you to be the leader in your space in terms of distribution and revenue?

* How much capital is necessary? (In what time frame and for what purposes?)

* How much will it cost to raise the funds?

* Is the timing right?

* Will money be raised through a private placement, borrowed from your local bank or will you consider going public?

* What kind of company do you want to eventually become?

* How do you promote, sell and distribute your product or service?

Promotion, sales and distribution are at the heart of the issue small businesses face. Those who can answer this question effectively will succeed.

Those who cannot answer the promotion question--or who foolishly believe their product is good enough to sell itself--will find themselves struggling and having to "push" their product.

No matter how fantastic a product or service, if no one knows about it, or cannot find and readily purchase it, it isn't going to sell very well. In other words, carving out a niche is essential.

With answers to the list of questions above, the small-business owner should carefully weigh the advantages and disadvantages of raising money through debt or equity.

What's Missing?

Once a determination has been made that raising money is the right course of action, then investigate the various ways of raising capital and decide which one (or combination) is the best way to finance the firm.

The six most common capital-raising methods are:

1. Private placements

2. Venture capital

3. Underwriters or broker dealers

4. Private equity firms

5. Angel investors

6. Family and/or friends

All of these methods are avenues...