The society we live in today is one in which financial stability and independence are very important.
We strive daily to brace the tides and waves to stay afloat the current financial storms we face in our country.
To navigate this storm, over time it has been discovered that one sure way is being self-sufficient, self-reliant, building and working on your own ideas, in a nutshell, being an entrepreneur.
That said, making the decision to become an entrepreneur or starting a business is relatively easy. The hard part is securing startup capital and financing the business.
Many great business ideas never come to life as a result of lack of startup capital and so most of the times those dreams and ideas remain as mere dreams.
If done right, securing funds for your startup should not give you sleepless nights.
In this piece, we take a look at simple but viable options you can explore to secure capital for your business
How much capital does your business need?
It is said that knowing who (in this case what) you are up against in a knife fight raises your odds of winning the fight.
In the same vein, being able to answer the question of how much your business needs not only raises your odds of securing startup capital, it sets you off on a winning start.
At the ideation stage of your business, that is when you are dreaming up this business idea, the first question you need to answer is what is your startup cost for your idea.
This is also the reason we advise our beloved readers to develop a good business plan. This is because a good business plan will capture the estimated cost you need to start up your business.
Realize that without knowing for sure how much you need, you cannot start seeking for funding for your business.
So you should know the cost of every aspect of your business idea at your fingertips, at least an estimated one.
How much would you tell investors you need? If you were to seek for loans from family or friends or even a banker, how much will you say you need?
How would you convince others to part with their funds if you are not sure yourself?
Arm yourself with a good business plan, cost every aspect of your idea and then you are ready to secure the funds you need for that startup. This would not only help you request for funding, but it would also help really evaluate the viability of your business idea.
This would not only help you request for funding, but it would also help really evaluate the viability of your business idea.
Sources of Capital
As you start outsourcing for funds and startup capital, there is always the first rule to keep in mind as the success of your business may depend on it. NEVER START UP A BUSINESS ON A LOAN.
Why you should not start up your business on a loan:
- It is a startup and so it is an unproven business idea. You have not put that idea of yours to a test, you haven’t proven if your approach will work or not, so doing that on a loan, supposing it fails? You have not ‘tasted the waters’ with that business, it is a bad idea to start on a loan
- Starting a business requires a high level of commitment and devotion, it requires extra efforts, time and devotion to hitting the ground running. At the level of startup, a loan may seem like an easy source of funding and so may not get the desired commitment a startup requires and you may pack up sooner than later.
- The idea you just had before venturing into the business may not survive if you test run it making money for someone else, this is because starting on a loan, you are making wealth for another person (through rates) and you have not started making profits because the money (capital) belongs to someone else. If it fails, you may never recover
Having said that, here are proven sources of funding for starting your business:
1 Personal Savings
In a bid to source for funding for your startup, you have to bring something to the table. You cannot seek for funding for your own business if you’re not first bringing in anything into the mix.
You should have something to offer. It is expected that before you wake up and decide to venture into any form of business, you have some level or forms of funds and finance saved up already.
Agreed, relying only on your savings may not be enough to fund a business but it is a good start. The advantage is that there is no cost on your own saving. You are not paying any interest on the fund.
Having your money on the line gives you a totally different outlook on your business, it gives you a sense of commitment and diligence because your fund is involved.
Also, realize that with your personal savings you do not need to continue waiting endlessly searching for funds before your business idea starts.
Your personal savings is one fund you have total control over. You decide how the money is spent and on what it is spent on, you do not make any returns to anyone but yourself. It is not wise to go outsourcing for funds when you have savings.
In the event you do not have enough savings, getting a loan should not be the first idea that pops up in mind to fund your startup, you can generate your savings.
How? You have some assets you do not need at the moment you can dispose of to raise your own funds. Why accumulate those assets when you can turn it into quick funds for your startup?
When starting a business venture, it’s better to consider using what you have first to startup. If you have some assets the better for you, just sell them and convert the cash to start your business. This will turn out much cheaper than going out for a loan which instantly hits you with high rates.
If you have some assets the better for you, just sell them and convert the cash to start your business. This will turn out much cheaper than going out for a loan which instantly hits you with high rates.
The idea here is ensuring you reduce the risk of starting off with liabilities when you can avoid them.
Still talking about securing startup funds, how about Starting small?
Sometimes entrepreneurs stall their startups because they keep a big picture in mind.
This sometimes ends up not turning out well. This is not relegating dreaming big to the background, no, as the saying goes, dream big but start small.
There is nothing wrong in starting small, after all, that’s why it is a startup. Starting small means rolling out on a low budget. At this point you have determined how much your business needs to kick off, that being done, how best can you roll out small?
For instance, if you can start up that business operation from home, why go renting a shop at the moment? The trick is ensuring that you minimize expenses you do not need at the moment as much as possible.
Rolling out on a small budget saves you a whole lot of headache as regards funding.
So, it is wisdom to start up small on a low-key when you can minimize the cost than getting funds that will give the business a shaky start.
2 Friends and Family
Your friends and family are the closest people to you, they are the people who know you much better than every other person you are trying to convince or raise funds from.
Arguably, they should first believe you before your prospective customers or investors.
It is widely believed and truly so too that your family and friends are the very first people who have your best interest at heart and so ordinarily are the first that will jump at the opportunity of helping you raise the capital to fund your startup.
When you find it difficult to get funding from this source, the challenge sometimes could be the business idea.
If that business idea is good enough, your family and friends should be the first to be convinced.
If you cannot convince these closest people to you on how good your idea is, trust me no one else would get convinced. This is why your idea has to be very viable.
This is one of the very best sources of early-stage funding for your startup. It is the easiest and fastest way to raise funds. They are the easiest investors for your startup.
You do not need any protocol to access your family and friends, so there are no bottlenecks.
The cost of borrowing from family and friends is relatively minimal. In terms of turnaround time to get the funds, it is readily available at your disposal.
There are most times no rate in terms of interests required as ordinarily your friends and family will feel a certain level of obligation to help you.
It is also cheap as you have enough time to be with the funds before returning.
3 Venture Capital
Venture capital is one viable and thriving source of funding for business startups today.
This is a type of funding for new or growing businesses. In venture capital, the venture capital firm gives the startup business funding in exchange for having equity in the startup.
It is funding provided by private investors to startups. Venture capital firms fund your startup by owning investment portfolios in the business.
Like we have often warned, funding a startup with borrowed money (loan) is a bad idea so we would not be talking about loans for funding a startup here but venture capital is quite different.
Although venture capital and loans are both common sources of startup capitals, venture capital is very different.
When you take a loan, you have a contracted obligation to pay back the loan including accrued interest over a specified period of time.
Sometimes as a startup, you may not be able to assess loan because it comes with demands for collateral, sometimes it may also come with the risk of having to lose your business if you default in your repayment schedules.
But with venture capital, the startup issues shares in exchange for the fund, which is quite a safer option.
The venture capitalist becomes a partial owner of the startup. You do not need collateral to back up them investing in the startup, and there is zero chance of failing when you have a venture capitalist investing in your startup.
You do not need collateral to back up them investing in the startup, and there is zero chance of failing when you have a venture capitalist investing in your startup.
These guys do not just invest and walk away leaving you to yourself, they provide the know-how on how to run the business, they provide the needed expertise and again, having your startup identify with any venture capital firm gives you a whole lot of credibility in the market because that shows your idea is that good.
How does venture capital funding benefit you as a startup entrepreneur?
- It is not a loan scheme, so you do not need collateral to assess it, you are not under any pressure of repayment schedules.
- Easy access to startup fund. Having a venture capital backing your startup, it ensures your idea does not die because of lack of funding
- Needed expertise. Venture capitalist provide the needed expertise to run the business as they have deep knowledge of specific markets and this can help your startup avoid many pitfalls as you roll out.
- Aside the financial backing, obtaining venture capital financing can give your startup valuable guidance and help in a wide range of managing critical business decisions.
How to Best Manage Your Funds
If you are a small business owner, you should know that the key to your success is not just driven by how good your patronage is, or the source of your funds or number of business deals and transactions, but it’s also driven by how best you manage your funds.
Financial management is very key to growing any business, startup or existing.
That is why you should pay close attention to your financials.
One fundamental error entrepreneurs do, especially startups is not managing the available funds at their disposal.
It is one thing sourcing for fund to start the business venture, but it requires a high level of discipline managing those funds well
Realize that there can never be any business growth if funds are not managed well. No matter how well or easily you source your startup fund and from where ever if you do not manage it well it goes down the drain.
How to best manage your funds applies differently to persons but these few tips could help.
I. Start Budgeting
Budgeting is the ‘fixer’ in any financial management system. This is your guideline to plug the holes in your financial books. If you have a good business plan then you should have a budget.
A good budgeting requires you do not spend recklessly. For most business owners, once they have lots of funds at their disposal, they seem to forget the purpose it was meant for.
They feel it’s so much money and then begin to buy and spend on things they shouldn’t.
Have a budget of your expenses and track it diligently. You do not just spend without looking at the budget.
For any business, you should have at the back of your hands the necessary expenditures for say a month (a reason why you should have a good business plan), and you stick to that budget.
As much as you can, minimize the spending.
As you draw up your budget, allocate funds to all the necessary spending accounts you have for the business. The budget should be your compass on how you spend funds.
Without a budget, you are headed for doom with your funds.
Draw out a spending plan, and stick to it religiously.
II. Develop a Savings Culture
Once the budget aspect is fixed, one area of importance that should get your attention should be saving up funds.
You can start this by reducing the cost of running the business as much as possible. Prudently downsize the channels through which the business is expending funds.
A good savings culture is not just about having money in your account, it is more about being smart and creative with our money. How? Don’t just stash up the funds, you can be smart enough to put those savings into generating more income for you.
Also, realize that having a good savings culture saves you the embarrassment of being stuck when those unforeseen business circumstances suddenly pop up.
III. Do Not Scale too Early
Every entrepreneur desires to take his business from one level to another. But with that in mind, it is wisdom to avoid scaling way too early than you should.
Understand that every business grows in distinct phases. Take your business through all the necessary phase needed.
Do not jump or leap out too early. It is not wisdom to turn in all your funds in a bid to scale up when it’s not time yet.
IV. Boost Your Cash Flow
Business will not always be all rosy and sunshine always. There will be days and times when the wheels of business will turn slower. At the downtime, you need to strategize on how to still keep your cash flow wet and flowing.
At the downtime, you need to strategize on how to still keep your cash flow wet and flowing.
You have to figure out ways to increase your cash flow, this way once your cash flow is not slowed down by the downtimes of business, you are well equipped to manage your funds and grow the business.
For instance, you can come up with incentives to motivate your customers to still do business when patronage is slow, you can even hand out credit sales to trusted customers when business is slow.
The agenda here is to ensure there are ways to boost your cash flow in order to manage your business funds and ensure your business stays afloat.
We also provide funding to early-stage business to further de-risk their model.