Raising finance for your startup is inevitable. However, there 10 commandments for financing your startup that we would like to recommend for you as follows:
The 1st commandment: Thou shall not approach anybody legal person or individuals to put their money in your business until you have prepared a business plan showing the organizational, marketing and financial processes of the business. Such approaches without a business plan have no motivation and guidance for positive decision making, and may therefore produce no positive outcome.
The 2nd commandment: Thou shall not look forward to borrowing from a bank to cover your start-up expenses. It will never come and you may be frustrated if this is your only hope of starting.
The 3rd commandment: After you have started your business but before you approach a bank for a loan, thou shall ensure that you have started a relationship with the bank by opening a savings account and /or a chequing account with the bank. That relationship would have given the bank an indication of the kind of person you are and this may aid the bank in deciding your loan application in future.
The 4th Commandment: Thou shall study to show yourself approved in respect of all possible sources of funding for your business before selecting the most appropriate for your stage of business development. Thou shall remember at all times that there are several possible sources of finance.
The 5th commandment: Thou shall not continue to own 100% of a dying business when there are prospective investors willing to co-own the business with you by putting their money into the business owning 50% per cent of a thriving business is better than owning 100% of a dying business.
The 6th Commandment: Thou shall bear in mind that there is direct relationship between the cost of borrowed funds and the profit from your business and that whenever your interest rate is far higher than the internal rate of return on your business, you are only slaving for the creditor or the lender.
The 7th Commandment: Thou shall not take a break from your business at the early stage except because of ill-health. You shall work around the clock long days and long nights knowing fully well that you are building a brand and your hard work is essentially increasing the value of your business.
The 8th Commandment: Thou shall put in place a credit policy that ensures that your finances are not outside your control or put in the hand of those you sold to on credit. As a rule of thumb, never give sales credit in excess of the credit you also receive from your suppliers.
The 9th Commandment: Thou shall ensure that you are never tempted at any time to borrow or source short-term funding to finance long-term expenses and vice versa because when you use short-term credit for long term expenses, your business will suffer cash-flow shock and may be choked out of existence and when you use long-term credit to address short term obligation, you may be tempted to begin to live like a king when you are just an emerging prince.
The 10th Commandment: Thou shall not borrow except it is absolutely necessary. The borrower is a servant to the lender as long as the borrower’s funds remain unpaid.