Where will you get the financing necessary for your business? This is the nightmare of entrepreneurs and has kept many out of realizing their dreams. If anything attracts the “midnight” attention of businessmen it is money; and it is never enough whether for Chijioke, the $50 start up entrepreneur in Aba, Nigeria or for Bill Gates, the $50 billion dollar entrepreneur in the USA. So where can you, an entrepreneur get some of the funds for your business idea. We list some of them here.
1. Personal Savings
This is the first line of finance for your business – your personal savings. Little drops of water make a mighty ocean. Start setting sums funds away on a regular basis, say monthly. In time this will sum up to a sizable amount you could plough into business. The beauty of personal savings is that it easily comes handy and is less expensive with fewer strings attached. Besides, it bolsters other peoples’ confidence in your project and makes it easier for you to raise additional funding. The volume of personal funds you put into your also reveals the level of commitment you have in the business.
2. Family and Friends
Your family members can raise some funds for your business. The mistake most entrepreneurs make here is to take for granted and fail to make good and convincing presentations to members of their family. As a result they sound either unserious or unconvincing, making it difficult for these to buy into their ideas and provide some funding leeway. Whatever is worth doing is worth done well. Always wear the serious garb. Same token applies to your friends. You could raise some money or soft loans from them for your business idea. But first package yourself, your project and your request. Never take things for granted. They have alternative needs for their funds and have every reason to subject you to scrutiny.
3. Sale of Equity
Another way to raise some funds for your business is to sale equity, stakes or shares to other interested investors. You could do this directly or engage a company to do this for you. In this way you share risks and the profits in the business.
4. Personal Restructuring (Sale of Personal Assets)
When setting up your business you could restructure your finances in the short run. This could be by selling off some of your fixed assets like landed property, shares in companies, or other assets.
5. Venture Capitalists
Venture capitalists are another source of funds. They are risk and profit takers. They are interested in highly profitable ventures whether new or existing. Some however have specific industries they invest in. For them, as with the banks, they demand for feasibility reports, business plans and audited accounts. Besides they always conduct due diligence to proof the veracity of information and data presented to them. Venture capitalists prefer big and capital intensive projects with very good margins. Most would always insist on seconding some of their personnel into the top management of the firm.
This is an indirect way of raising funding for your business. With leasing you get the purchase of your assets funding by a leasing/finance company while you make pay on a monthly basis over an agreed period. This is similar to hire purchase which has gone archaic in business practices.
7. Bank loans and Mortgages
Banks still stand as regular financiers of businesses. However, most banks are wary of start ups and untested projects for fear of project failure. They are risk averters and thus are not very good targets for the funding of new and start-up ideas. To get bank funding you must present a well prepared feasibility report, workable business plan and the repayment ability must be seen by appraisers. Besides, there must be a fallback position – tangible collateral – for the bank. The problem with most entrepreneurs is that they simply walk into a bank and start discussing loan requests without first doing their homework. Bankers detest this and it presents you as a non serious business person. So first prepare yourself indoors. Ask if you were the banker would you accept the proposal the way it is presented. Bankers are trained and they think conservatively for the purpose of protecting their investors’ and depositors’ funds.
A mortgage is much easier to get bye. However this presupposes that you have a property or asset to mortgage which must have good title and be in good location.
Grants where available could form part of your business finances. The snag here is they always come with strings and conditions and may not come when you need it and in the form you need it.
9. Trade Credits
If you check the audited report of large corporations you will always find a huge amount in the liabilities side of their balance sheet tagged Creditors. What is this? It is indirect funding provided by suppliers and other trade partners. How do they do this? They delay payment to suppliers and trade partners for some time while doing business with the funds. Some have legalized such debts by stating clearly in the contract terms that payments for jobs done will only be paid for after so many number of days or weeks or months. This is supplier credit and is an indirect funding. The problem here is that for a small firm or a start up, it could be misinterpreted by your trade partners that you are going broke or that you do not have enough funds; thus scaring away good suppliers and good trade partners. So, use trade credit expertly and with caution
10. Business profits
Your business profits are another easy source of funds. Plough this or some part of it back into the business. It is same as savings and it builds your value and assets. It also says much about your commitment into the business and is an easy way to grow.
How do you manage your business debts, especially, the bad ones? Once they accumulate you end up simply carrying dead weights that add no value to your business. Somehow, bad debts would always be in business and are deductions from your business funds. Factoring is the practice of selling off the book debts to a factor or debt management/collection agency at a discount. In this way a discounted value of the book debts are released to you for your business operations while the factor worries about the collection.
12. Business Restructuring
Perhaps you have had of companies selling off some assets, selling off some divisions of their businesses, stopping some business lines or laying off some staff or reducing salaries and allowances. These are all strategies aimed at releasing operating funds. Can you look inwards and tactically restructure your operations to release the much needed funds?
13. Increasing Sales
Sales increases revenue and thence profits. To raise funds work at increasing your business turnover but at a profit. This would invariably add more funds to your business.