Story provided by Black Enterprise –

Raising capital is a process most small business owners must face at some point. Even a healthy, growing business often requires outside capital for the process of scaling up. But while these small business owners are focusing on calculating how much capital they need, they often overlook the steps involved to ensure that their business and leadership team is actually ready to seek that financing.

“The first thing is asking yourself, ‘Are you really, really ready to raise money?’” suggests Andrew Sherman, a partner at legal firm Jones Day and author of over a dozen books on the legal and strategic aspects of business growth and financing, including Raising Capital: . “Readiness has to do with both corporate structure, decision-making, and psychology.”

Do you have a company or a product? “You may have invented a product, but it doesn’t mean that you can build a company around it,” says Sherman. “Investors aren’t looking for fads. Remember, at some point they want to exit and they’re going to be thinking about whether this person built a company that someone else is going to want to buy.”

Is your management team ready? “Have you built a management team that will sustain itself in the event of a crisis? “Let’s say the owner of the company gets sick, or is unable to work. Is everything dependent on this one guy or gal or is there really a team here?” asks Sherman.

Are you prepared for the possibility of not getting what you want? “Some industries get hot and cold relatively quickly. was white hot a few years ago, and not so much now,” says Sherman. “And if you’re in a very cold industry, you often will be penalized by potentially being in that industry even if your business plan is rock solid.  That’s very frustrating for many entrepreneurs.” As a result your company would command a lower multiple.

Are you ready from a reporting perspective? They never had other owners they had to answer to. And that’s a whole new experience, even if you maintain control. One of the great entrepreneurial pits is that if I have more than 51%, then I’ll have all the control.  Well, anyone who believes that has never seen a typical investor turnkey.

Are you ready from a decision-making perspective? Entrepreneurs often have the final say in the operation and management of his or her venture. But bringing in an investor often means relinquishing at least a portion of that control. “Imagine living alone for 60 years, and you finally get married. It’s going to be an adjustment, having somebody else in the house,” says Sherman. “That’s what it’s like for a lot of entrepreneurs.”

Are you ready to listen? The number one issue that investors cite when they turn down a deal is the entrepreneur’s inability to listen, says Sherman. “They’re either too stubborn or too set in their ways,” he says. “Getting good advisors and understanding the balancing of the needs between the investor and the entrepreneur is a critical piece of the process.”

Are you really ready for the process? The process begins with having a solid business plan and the ability to forecast and demonstrate the business model. “One of the things an investor is going to look at is whether this entrepreneur understands what it means to have investors,” says Sherman. There’s also understanding the investors’ expectations. “Is it more of an angel style investor? Is it more of a venture capitalist style investor? Is it more of a private placement?”