Ways to finance your start-up

 IFE ADEDAPO

   

 

IFE ADEDAPO writes on different sources that can be explored to fund a new venture

Entrepreneurs with great business ideas are often eager to venture out and actualise their dreams; however, start-up funds usually pose a great challenge.

For those who have not been saving enough money that will be sufficient to invest in a business of their choice, looking outwards for finance becomes the next option.

In search of the much needed fund, so many people have reportedly written several business proposals and distributed to potential investors. However, instead of getting the expected support, the investors steal the ideas from them and implement them to their own benefits. Others have their proposals rejected outrightly on the excuse that it was not profitable enough for the investors to fund.

These and many more disappointments are encountered by entrepreneurs who are testing the waters for the first time.

Major sources of finance that have proved to be useful, according to Cousera include:

Venture capitalists

Years back, funds used in investing in businesses are usually sourced from venture capitalists.

Experts note that venture capitalists are professional investors who have expertise in identifying highly profitable businesses and investing money from limited partnerships, pension and endowment funds.

Angel investors

Angel investors who utilise their personal resources to support start-ups were common but because of trust issues in the present business environment, such investors are hard to come by.

Experts note that angel investors are often retired business owners and executives, with experience in business management practices, therefore they can always provide valuable management advice and business links.

Friends and family

To successfully get the needed funds from family members, a business consultant, Mr. Ayorinde Bamgbose, suggests that those who are easily excited about a new venture and show genuine interest should be approached.

According to him, these people can easily raise capital when they know the entrepreneur personally and have confidence in the person’s ability to manage the money appropriately.

He adds that the capital required can be realised quickly when more than one family or friend is approached.

He however warns that new business owners should be cautious and be prepared for issues that may arise from such sources of finance.

Such issues, which have to be managed with wisdom, he says are a yearning by the financier to have a large stake in the new business and make important decisions.

Bootstrapping

Every entrepreneur should first consider financing their start-ups from personal funds, experts advice.

For people who don’t have enough savings to support a new venture, Bamgbose says alternative ways can be explored.

He says, “Retirement Savings Account which allows a deduction of 25 per cent of the pension funds as unemployment benefit within four months of application can be channelled into a lucrative venture.

“Equity can be collected from the sale of real estate properties, vehicles, recreational equipment, and even artefacts. Moreover, some wealthy entrepreneurs can choose to raise capital for their new business using their own personal savings. A combination of different sources of capital can be utilise by new business owners.”

However, he cautions that the business model of a venture financed through personal means must be one that will guarantee immediate return on investment.

He says, “If you are bootstrapping, you need to make sure that your business model generates revenue quickly. If not, you will have no alternative funds when you finish your reserves.”

Crowdfunding

This mode of sourcing for finance has been often associated with philanthropy, giving to a cause and often utilised by Non-Governmental Organisations.

Crowdfunding, a practice of funding a project by raising contributions from a large number of people, is typically done via the social media platforms.

However, experts note that crowd funding is a great way to raise funds for a new business, but may not be suitable for all businesses.

In addition, as you nurture your business ideas, prepare for funding opportunities that may come your way either from friends or family members, government or interested business associates. Experts have highlighted some things to prepare for.

Conduct due diligence of your business

Financial experts note that it is important to have a realistic assessment of the proposed business financial needs. They add that the due diligence helps to allay fears of the investors on mismanagement of funds by analysing the business operations and projecting the financial requirements based on past experiences.

Bamgbose says that the entrepreneurs should clearly state what the funds will be able to achieve.

He says, “Be clear in the following area, ‘Why do you need the financing? What are your goals? What is your own personal input? What will you use the capital for? How many employees do you plan on engaging? Highlight the projected revenue at every stage of the business cycle.”

Differentiate between fixed and variable expenses

Entrepreneurs should be able to differentiate between fixed expenses and variable ones.

According to Bamgbose, new business owners need to analyse the amount of money they will need for rent, insurance, utilities, administrative cost, when they decide to raise capital.

He adds that variable expenses such as account inventory, shipping and packaging costs, sales commissions, and other expenses related to the direct sale of a product or service should be identified.

S0OURCE:PUNCH