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How to Build a Prospectus

EQUES > Business Law  > How to Build a Prospectus

How to Build a Prospectus

In the life of a small business, there are times when you will only be able to bridge the distance between where you are and where you want to be with additional resources.

These can be very stressful times, especially if you have bootstrapped your small business and have not had to raise or seek out capital before.

There are many questions about what investors or banks want to see.

And if finances are your strong suit, then it can seem all the more daunting.

But what you can miss amid this uncertainty is that you are the best person to talk about and ask investors or lenders to join you on your journey.

You believe the most in and know the most about what you are doing. There is no one better qualified to talk about what is next for your small business.

You just need to organize your thoughts and “show your work,” like your math teacher always said.

 

Below is a brief outline of how to build a Prospectus that will organize your thoughts and help gather the data needed by investors and lenders.

There are excellent resources online that can give you examples and a leg up in building your Prospectus.

Additionally, don’t skip investing in outside advice on building the particulars of your Prospectus.

Seeking advice from your attorney, CPA, certified financial advisor, or even someone else who has gone through a fundraising round will be well worth the investment to leverage their expertise and experience.

Additionally, our team at Eques has the knowledge and experience to help you build your Prospectus and evaluate if you need to be concerned with and Security and Exchange Commission rules and regulations.

 

What should a Prospectus include:

 

  1. Overview and History of the Business
  • Start by talking about the vision, mission, and strategy of the business.

 

  1. Services and/or Products Offered by the Business
  • In this section, talk about what the business does currently and what it wants to do next (if applicable)
  • Make sure you address the core question, “How does your product/service answer or meet a need inside your market?”

 

  1. Leadership Profile
  • In this section, talk about yourself, your qualifications, your team members, and their qualifications to give the investors/lender confidence that you know what you are doing and how to run a growing business.
  • Make sure to address the question, “Why are you are doing whatever it is your business does?” Starting with Why allows you to craft a compelling reason for investors/lenders.

 

  1. Deal Structure
  • This section details how much you are seeking, over how long a period, at what rate, and on what repayment terms.
  • If you are working with a lender, they will dictate these terms, but you need to understand the terms of any potential loan clearly.
  • If you are seeking investors, work with your financial advisor to craft an attractive pitch for your potential investors.

 

  1. Use of Funds
  • This section goes into detail about how the proceeds will be used.
  • Explain the “market share” that you hope to capture through the deployment of the funds.
  • Structure this section via a spreadsheet. Sow the total funds requested and how they will be broken out clearly and succinctly.

 

  1. Pro Forma & Mission Advancement
  • In this section, answer the question, “How will the funds result in increased cash flow to service the debt and grow the business?”
  • This section is also an important place to talk about how the mission/vision of your business is advanced.

 

  1. Financial Information
  • This section should detail the business’s past growth (5 years should be sufficient) and the value of the business’s current property holdings, assets, equipment, inventory, intellectual property, etc.
  • The reason for this section is to give confidence that the business has the strength to service the debt or repay investors and a track record of growth focused on its winning strategy.

 

  1. Risks and Disclaimers
  • All investments have risks. This section should detail that there is no guarantee of success and list general and specifics risks that could undermine the project (increasing supply costs, lack of workforce, increasing wages, acts of God, etc.)

 

  1. The Ask
  • This section is used if you are seeking investors.
  • It should reiterate the ask and provide the opportunity for committing to the project.

 

  1. A Commitment
  • This section should also be used if you are seeking investors.
  • Often this is a single-page agreement that outlines the amount your investors are committing.

 

If you need help starting your Prospectus, reach out to the team at Eques, and they will get you started.

 

Christopher M. White

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