When you decide to start a business, finance is one of the most important issues you will need to consider.
How do you raise all the money that you need to start and run the business? And it all depends on you and your business plan. Your business plan should tell you exactly how much money you are going to need in order to start a business.
Therefore how much you are seeking will obviously determine the source of the funding. I am thus going to discuss with you a few options that you could look at if you want to finance your business.
All finance options have their pros and cons. However, the main finance factor will always be the cost of that finance. If you don’t pay attention to how much the funding will cost you then your cash-flows may end up suffering from finance service charges.
If you are a disciplined saver, it may be possible that you will have a little money set aside. This would be an excellent source of business finance. That is because it will cost you nothing to access the funds.
If you lose it, hey, it`s your own money. Better your money that someone else`s. You answer to no one, and so if you have this form of funding as an option I would seriously urge you to consider using that.
Friends & Family
You could also consider talking to family and friends to see if they can offer you some funding. This is also a good finance option because it rarely comes at a cost.
Successful entrepreneur Lowell Hawthorne used family finance to build the Golden Krust franchise empire.
However, it can become complicated if you lose that money in your business endeavors. It is therefore essential for you to be honest and up-front when you ask for the money. Let them know that they are sharing business risk with you and if things don’t go well their money could be lost.
It is also essential for you to clarify what they get in return for their money. Since it is usually rare for family members to charge you interest, it is more likely they will expect to share ownership with you.
It is therefore good to clarify things at the very beginning so you don’t have problems in the future.
You could also consider borrowing the capital for your business from banks. Bank loans will come with interest charges and will usually require you to raise at least 50% of the required amount.
So unless you can meet that requirement it would be pointless to even approach the banks because they simply will not give you the funding.
If you consider this kind of funding you will also need to be aware that you will need to pitch your business plan to the bank manager so be prepared for that.
Business Angels will give you funding to start your business for a share of your business. You will need to convince them that your idea is potentially viable and that they will not lose their money if they invest in you.
However, if you do consider this form of funding you will need to make a decision as to how much of your business you are prepared to give away. Give away too much and you may end up regretting it in the future.
You will find that agreeing on the value of a business idea whose viability has not been proven is not easy.
Most of the negotiations will be based on hypotheticals so chances are angels will want a bigger chunk of the business because the risk of backing an unproven idea is quite high.
But if you decide to go this route as a source of funding, do try to keep the share you give away under 40%, if at all possible.
However, there are some that need to be repaid so make sure you know the conditions associated with the particular grant you are applying for. Almost every grant is interest-free or the interest will be so negligible to cause you problems.
You will, therefore, need to do a lot of research to find which grants you could be entitled to. This because grants are not available to all types of businesses or sectors.
This can be another good source of funding. You could get a job and raise the funding that way. Of course, the main disadvantage of this method is that you may find that setting aside money each month for the purpose of future business funding will not be that easy.
The big risk is if you fail to get traction on your saving, you will end up getting comfortable on the job and never getting round to starting that business after all.
Worse still if you suddenly get a mediocre promotion, then you will find it increasingly difficult to walk away from the job as per plan.
Need For A Good Business Plan
You will already know about this, but I will say it all the same. If you plan to seek funding from external sources like banks and angels you will need to have a good solid business plan.
If you cannot do it on your own, then engage an expert to do the plan for you. But always make sure you study the business plan and fully understand it yourself before you try to pitch it to anyone.
The last thing you want is to be asked about the elements of your business plan and being unable to answer. Trust me it happens especially if you are not a finance person.
That will not inspire confidence and funders will not back your business. Remember when you approach funders you are not only selling your business idea but yourself as the person who will successfully run that business.
I hope this information will be very helpful to you and I also wish you all the best with raising that finance.