You have done the required research, and written the business plan, but how can you raise the funds required to kick-off your business?
While writing your business plan, you should have determined how much you need and what you need the money for, as this will be important information when approaching potential sources. When raising finance from external sources, it is often helpful to show that you have personally raised or invested some money towards the business. This shows that you are willing to take a personal risk yourself, making financiers more willing to want to take the risk with you. Similarly, you’ll need to show that you’ve thought about the financial side by doing an in-depth financial projection, coving income sources, expenditure and cash flow. This is critical when looking to raise capital, and given the potential cost of Excel mistakes, it’s a document you should check thoroughly before presenting.
So, what funding options are available? A popular source is, of course, the bank. Should you choose this line or an external funding organisation, it is imperative that your business plan is sound. Sound, meaning it is well written, clearly defines the business idea, demonstrates potential, and return on investment. Simply put, your business plan is your written sales pitch in convincing an investor to lend you money. More important is having a relationship with the bank, having a guarantor who can stand for you, or assets as collateral. You can either apply for a loan or request an overdraft, but it’s imperative you pay attention to the details, such as interest rates, charges and terms.
You also have the option of Private Investors and Venture Capitalists. This is where things get more intricate and not as straightforward as getting a loan from the banks. However, Private Investors are willing to invest in more risky ventures, often in return for shares in your company.
Venture capital funds are funds put up by investment trusts, pension funds, banks, insurance companies, private individuals and industrial corporations. These funds look to invest in companies that can reach significant profits to regain their money.
A popular source of finance these days is ‘Crowdsourcing’. This allows you to raise money from the public and those interested in your business idea, and usually on the internet platform. In return, you are often required to give something back such as a percentage stake in your company or profits.
Whatever you opt for, be sure to consider all the options available before making a decision, and pay particular attention to the terms and conditions attached to gaining funding. Often its’ better to use your own savings or money borrowed from friends and family (to avoid significant interest charges or losing equity in your business), however it will depend on the type of business you’re running, the level of risk associated with it and how much money you need.