How to Fund an Engineering Firm

There are many markets where establishing an engineering firm would make good business sense. The market may be primed and an idea for an engineering firm may be bursting with potential, but without funding to start the engineering firm, nothing will happen. An entrepreneur must seek funding before an engineering firm can become a reality.

Difficulty: Moderately Challenging

Instructions

Examine Your Funding Options

1. Consider funding the firm through selling debt. Banks offer money to entrepreneurs in exchange for the promise that he or she will pay back the loan plus interest. Private investors or family members can offer a similar trade-off in exchange for start-up funds.

2. Consider funding the firm through selling equity in the firm. In exchange for giving an entrepreneur capital for starting the engineering firm, the entrepreneur offers investors partial ownership of the firm in the form of stock. Investors can sell the stock to recoup their investment. The use of equity funding has ramifications for the legal structure of an engineering firm.

3. Capitalize through self-financing. An entrepreneur starts small and reinvests profits into growing the company over a long period of time. Asking for loans or selling shares takes less time, but self-financing does avoid the trappings of debt and equity.

Begin Your Fundraising

4. Determine how much capital is required to get an engineering firm started.

5. Prepare a business plan that convinces potential financiers (yourself included) to fund your engineering firm.

6. Spread the word among qualified investors that there is an engineering firm they can fund.

7. Meet with prospective investors and present the business plan and funding need request.

8. Give the investors time--along with an appropriate decision deadline--in order for them to perform their due diligence and decide whether to fund the firm or not.

9. Collect the requested funds or figure out why the investment did not meet their criteria at this time. Make sure to thank the investors regardless.

10. Hire a lawyer to draw up the necessary papers for your corporation, detailing the liabilities that you, your partners and your investors will take on.

11. Report to investors on a periodic basis concerning the firm's performance and the state of their investment.

12. Stay vigilant about finding other investors as well as keeping current investors happy, in case the firm reaches another level which requires new funding.

Tips & Warnings

• Keep in mind that most investors require a personal guarantee on their investment, which can put the entrepreneur's personal property at risk if the investment turns out not to be sound.

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