Starting your business can be a daunting yet rewarding process. Having a great business plan is an integral part of making your business succeed. However, financing is the bloodline for any start-up business. Without proper financing, it will be a lot more challenging to penetrate the market.
Coming up with a good business plan shouldn’t be an overly complicated process, as you can simply learn the skills through some of the best virtual training platforms. However, it is no brainer that financing a start-up can be challenging, more so if you have poor credit.
According to recent statistics, new businesses have a 70% failure rate within the first decade. 20% of these businesses won’t even make it beyond a year. The lack of funding turns out to be one of the underlying reasons behind this failure.
Most start-up owners would put getting enough capital to fund their business a priority. However, it is also not recommended to put all your hard-earned personal money into a big project.
Based on the statistics above, only a few businesses survive the harsh competitive market to become somewhat ‘successful.’ If yours doesn’t fall within this threshold, then you will have lost a lot.
Starting a business (although it shouldn’t be) can be a gamble. You either win or lose; there’s no in-between. This is why you need to look for alternative financing options for your business; to help top up with what you raised.
This post seeks to identify the top five strategies for financing your start-up business. However, it would be prudent to have a quick look at some of the most important steps to undertake as you scout for financing options.
5 steps to take for fast financing of your business
Step 1: The first step to undertake would be to go back to the drawing board and have a clearer look at your business plan. You need to analyze your budget plan, forecast sales and expenditure. Based on your market research, you ought to be realistic on your figures, as you take into account all expected expenses to bring your business idea to life.
Step 2: Your budget plan has to include everything that’s needed for the business to run. Here, you’ll now have to go into the specifics and identify precisely what you’d require financing on and how much you’ll need.
Remember that start-up financing covers development costs and startup losses.
Step 3: Review your business plan and identify possible risks. Most of these unexpected problems may incur extra costs, and so you have to be ready for them. You might also need to freshen up your financial and accounting knowledge and develop your skills with flexible online course platforms to have a better idea of how to manage your business expenditures and when to invest.
Step 4: Take a look at the various start-up financing support options in your area. Ensure that you have all the necessary documents prepared to depend on the requirements for the financing options you’ll reach out to.
Step 5: Identify the possible financing options by looking at their pros and cons. Every start-up business financing option has its advantages and drawbacks, which you must look at before arriving at a decision.
The financing methods also might differ based on the type of your business. Thus, in case you plan to change your business from a sole proprietorship to LLC or to another business form, this might also have an impact on how you would finance your business.
You shouldn’t also entirely rely on such financing options as you can look at other avenues to raise capital for your new business. You might take a percentage off your savings or sell some valuable items which you may not immediately need to raise the capital for your new business.
The bottom line is for you to look for alternative ways to raise much of the capital yourself, as you’ll not incur huge interest rates on your loan or surrender a significant percentage of your business. Remember, nothing is free, and lenders are looking to make more money, meaning they’ll impose high-interest rates on you.
Top 5 start-up financing strategies to implement in 2021
The steps above will only prepare you as you start your journey of finding financiers for your new business. Here are the top five strategies to finance your startup in 2021:
1. Bootstrapping: Bootstrapping or self-funding should be every entrepreneur’s first choice when it comes to getting the capital needed to kickstart your start-up. You can use your savings or get assistance from your close friends and family members. They can help by giving you the capital needed to provide your business with a boost.
Furthermore, many other small business financing options might prove to be a little more challenging if you do not have anything to showcase the potential of the business. This means that you have to build some traction on the business first before any potential investors could be interested in financing your business.
Bootstrapping would be ideal for businesses that may not need too much capital. It may not work if the money you could ask from friends and family (and from your savings) may not take the business far. If that’s the case, then the next strategies may work better for you.
2. Crowdfunding: Crowdfunding is yet another popular business financing option to look at. Just as the name suggests, you’re getting funds or support from a crowd (different people).
Here’s how crowdfunding works ‒ an entrepreneur puts up a description of their business idea on a crowdfunding platform. They mention everything in detail, such as their business goals, plans on how to make profits, how much funding they need, and for what reason. Consumers can see the message, and if they like the idea, they can sponsor the entrepreneur.
It is not always about sending money or donations, but some people choose to support by pre-ordering the products. Others pledge to offer services that would see the business succeed, such as free consultations.
You should note that since crowdfunding is a public platform, you should expect many other entrepreneurs to seek the same help. If you wish to stand out, your business proposal must be rock solid and easily grabs the reader’s attention. Kickstarter and GoFundMe are just some of the popular crowdfunding platforms you can look at.
3. Look for angel investors: Angel investors can be simply identified as people with some surplus cash to spare and would invest in your business if you approach them with the right proposal. In most cases, these are people who come with financial backing, a solid network, vast experience, technical and managerial knowledge.
The catch is usually to get a share of the company or have a decision-making position, such as sitting on the board of directors.
4. Venture capitalists: Venture capitalists are the ‘big bets’ when it comes to searching for business funding options. Venture capital is a professionally managed fund that’s invested in companies with huge potentials. In most cases, venture capitalists invest in a business against equity. Most of them would exit whenever there is an acquisition or IPO.
Although venture capitalists are most likely to sponsor a startup with much of the needed funds, they are mostly not ideal for completely new businesses. This is because they mainly go for companies that have shown the potential and are already generating revenue. Venture capitalists would simply come in, and you would scale your business operations even higher.
5. Grants: There are many types of grants that your new business may benefit from, depending on the field and area of operation. Some governments and NGOs would offer grants, and all you need to do is write a comprehensive proposal for the grants that you may be able to receive.
Conclusion
If you wish to grow your business fast, you need to think outside the box and look for alternative funding options. If you only go for bootstrapping, you may not have to deal with paying back interests and giving away your company. However, you might miss out on market opportunities that may require additional funding.
The right financing strategy is entirely dependent on your business goals. Ensure you have a comprehensive business plan too, and you will realize that looking for the capital won’t be as hard as you might have imagined.