STEP: HOW TO GET FUNDING FOR YOUR NEW BUSINESS
All businesses, in order to be established, will require some form of capital or another. At the
onset of the business some form of funding takes place. This is necessary for the business
to be sustained in the early months or even years of its existence. The source of funding
could be; private equity, family, crowdfunding, venture capital, and bank loans.
Funding is the capital (money) provided to start a business, or to expand it. Without it the
business simply won’t exist. This money is used to register the business, depending of what
form the business takes. It’s used to rent or buy facilities, buy equipment and materials, pay
employees, pay for advertising. All before the business generates its first income or profit.
This once again applies to start-ups and expansions. The most important consideration
about initial funding is how much you will need until the business can sustain itself. It’s more
important to budget for more money than you need and use it wisely, than budget for too
little and need to get more while your business goes under before it starts.
SOURCES OF FUNDING
The three most common sources of funding are private equity, family, and banks. Private
equity is money that the business owners have prior to starting the business, either through
other jobs they hold, investments, or inheritance. Some business owners are able to source
funding from their relatives, usually at no interest. Banks are the most common source of
business loans today, and usually charge a significant interest on new business owners.
Crowdfunding in its simplest form is asking members of a community to contribute funds to a
new business or idea. Instead of going door to door, people use the internet. The
contributors do not necessarily get a stake in the business. However, depending on the size
of their contributions some contributors a promised discounts on the products once they are
developed, or even a free version of a product. The idea is to ask many people for a small
amount of money, and raise enough funds interest free that way.
Indiegogo is considered the largest online platform for crowdfunding to date. It allows people
to request funding by starting a campaign in various areas from technology to gaming to
design. There is scope for businesses of all kinds from inventors to athletes. Through their
donations system Indiegogo also allows non-profits to raise money.
A similar website to Indiegogo with the exception that it operates exclusively for creative
projects. Businesses that operate in a niche are likely to find funding on this platform.
Venture capital should be distinguished from angel investors. Angel investors, unlike the
former do not require equity in the business as an absolute. They often simply require a
return on their investment such as convertible debt at an interest lower than prime. Venture
capital is sponsored by an organisation intent on getting equity (ownership) in the business.
They target newly formed businesses in the hopes that there will be a massive return ones
the business booms.
Money is required to start a business and there are plenty of sources of money out there
today. The source of your funding may be influenced on how much you wish to raise, how
much of your business you wish to keep, and who you wish to involve in your business. So
be it banks or friends around the world, in order for your business to start moving on its own
accord you will need funding.
explain what funding is, why it’s important to be properly funded, what sources of funding are available, such as crowd funding, venture capital, family, bank, etc.
SETUP: HOW TO MAKE SURE YOUR NEW BUSINESS FINANCES WILL BE IN ORDER
Most new business owners don’t understand that their future business success is already being decided before the venture is named. Decisions in the planning process set them up for eventual success or failure. And the number one killer of businesses is inadequate cash flow in their first year of operations. So how do new business owners ensure they do not make this mistake? Below is a simple guide to help you determine the actual amount of finance needed for your new business.
Estimating Initial Startup Costs
Startup costs fall into 3 categories:
• Startup Assets are used for long periods, for example; facilities rent, furniture, initial inventory if you are selling or making products
• Startup Expenses include research & development, licenses, legal fees, website development, logo design, business cards and computers.
• Startup Financing all money spent before the first month of operation.
Refining Startup Financing Estimates
To correctly calculate your actual financing estimates, separate startup costs from expenses incurred in the first month/year of operation.
• Startup costs are pre-operational expenses
• Expenses in the initial period belong in the profit and loss statement
By separating these components, you avoid double counting.
Estimating First Year Expenses
Estimates should include fixed costs for each month plus variable expenses.
• Fixed Costs are unaffected by sales; wages & salaries, rent, utilities, insurance, office supplies, lease payments, loan repayments, etc.
• Variable Expenses change with sales; cost of inventory, commissions, shipping costs.
YOUR FIRST YEAR SALES FORECAST
Create a sales forecast for the first year, expecting to make losses in the first month or two. By using available data on similar businesses or products
• Determine the profile of potential customers
• Estimate the size of the market in your area
• And the average amount people spend on goods and services
• The average sales competitors in the area make
• And the average cost of acquiring a customer
Sources Of Financing
• Bank Loans: The solution that readily comes to most people
• Family and friends: Typically one of your first options
• Crowd Funding: Funding by thousands of people pooling small amounts to finance a startup.
• Product Presales: Raise money in the short term from traditional lenders by showing pre- orders.
• Selling Your Assets: Valuable assets can provide part funding for your business.
• Home Equity Loans: Usually cheaper than bank loans because they offer lower and flexible interest rates
• Assets Lease: Rent a portion of your property or lease out an asset you own
• Investors: You may sell a share the business to ease financial pressures
By following these steps, you would have done more than what 80% of businesses startups do. And you have more than quadrupled your chances for business success.
An intro paragraph explaining how important the financial side of the business are and that a special attention should be paid to this section even though the person’s passion maybe the actual business itself.
Initial Estimate of Investment Required: How much money do you need to start?
Where will you get the money?
Refined Estimate of Investment Required:
Actual Investment Required:
How much sales do you plan on generating in the first year and second year?
What will the expenses be?