Some Funding Ideas For Your Own Business
Starting your own business can be a nerve-wracking exercise, especially trying to get the funding you need to get started.
Any new business begins with an idea and the courage of a person who wants to make the idea work. Often the entrepreneur doesn’t have the financial means to make their idea a reality, which is where funding comes in. Whatever method of funding is chosen, it is imperative to have a good plan which shows the commercial case for providing the funding. Mankini anyone?
When deciding on the level of funding required for your business, think long term and work through the expected cashflow. This is one of the two vital elements in obtaining the financing you need. It is not unusual for expenses to be significant before the cash comes in – but it is vital that you work out how much financial support is needed to get the business up & running – and for how long the financing is needed.
The more care you can put into working out the business plan and cashflow forecast, the better your business position at the outset.
The primary method of funding a new venture is to obtain a loan from your regular bank. While you may have been a loyal customer for eons, and they’ve always been good to you, when it comes to financing a new business they will treat it on a commercial basis. That means they will charge more than you are used to if they are lending to you for a business, and they will expect your cashflow and business plan to be well prepared. You need to make the case for the loan yourself. Remember, a banker is a person who will lend you an umbrella when the sun is shining, but wants it back when it is raining. That's as it should be, that's part of why the system works.
It is important to get as much finance as you need to get your business off the ground. If you don’t get enough financing, that can kill your business before it gets started ... but get too much financing (more than the business actually needs) and the interest cost might kill the business in its early stages too.
A well thought out business plan is the other key to obtaining funding. Include essential information on how your idea works and how it will get the cash flowing.
Show your due diligence and market research that highlights the opportunity, and include all the relevant documentation.
Often new businesses are financed by friends or relatives. It can be a convenient method, but the risk of broken relationships shouldn’t be disregarded. A friend or relative might be happy to lend you some money at first, however after some time they might think themselves entitled to have a say in your business as they will often see themselves as sharing the risk with you.
If you do obtain funding from friends and family there should definitely be a written agreement to clarify what is expected from each party.
Think of it from the banks point of view, they don't really know you, though they pretend they do. They are lending you someone elses money so they have to be careful. Make the job easy for them. Tell them everything they need to convince them they will get their interest every month and, if it all turns to custard, their customer's money back.
There are two further options worth considering:
Funding through Business Angels
The principle of Business Angels works like Dragon’s Den. They are investors that often not only offer their money but also their experience, usually for a pre-agreed share in the business if the idea is good enough. Angels are usually focussed on the gain to be made as quickly as possible from exiting the business, so you need to be sure you all have the same timeframe and expectations about where the business is heading.
Funding through grants
Sometimes, you’ll be entitled to non-repayable grants. Check out opportunities for a local or even national grant. The application process can be quite hard, but the potential ‘free’ investment available is worth it – this is especially true if you are looking to set up an export business in New Zealand.
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