According to a study, over half of new businesses tend to go downhill during their first year of operations. A lack of funding options has been identified as one of the major reasons for that. Cash is vital to every business and is an indispensable to achieving business success. Business owners are always looking to find different ways to finance their businesses, either for expansion or even sustaining their current business model.
Businesses may require financing for many reasons. However, regardless of the need, you must be aware of the many different ways to get financing. Below are some of the options that are worth looking into.
Bootstrapping (or self-funding) is one of the most effective and recommended ways of funding a new business. It is tough for first-time entrepreneurs to acquire funding as they are new and may not have a financial history. Persuading someone to invest in your business is a tricky job. Therefore, the best plan of action is to use your own savings to fund your business in the beginning. You can also ask your family and friends to help you in this regard if they have the means. You can offer those who do invest shares in the business for their investments. Because these people are close to you and you most likely consider them trustworthy, they are the first ones you should contact when searching for potential funding options.
Bootstrapping also allows you to own your business from day one, as you have invested your own money into the venture. Later on, investors may view this as a positive aspect. However, this option is only suitable for businesses that do not require significant cash flows. Gathering and organizing all of your financial resources in your bookkeeping records is key to bootstrapping.
Crowdfunding is a new and popular way of raising finances for new business start-ups. It is basically a contribution by many people at the same time. You are required to set up a detailed description of your business on a crowd sourcing platform. The description should include every small detail about the business, its product offerings, goals, how it’s going to generate revenue and so on. People who visit these crowd sourcing platforms view the whole concept and invest in it if they are interested. All of these people are stakeholders in your business, depending on their investment.
Using crowd sourcing as a funding option is a great way to generate capital as well as market your business. More people know about your business, so it is like free marketing. You can also know in advance that your business is going to generate satisfactory interest among the audience. Basically, it offers you a broader perspective of your plan to be an entrepreneur. Crowdfunding, however, is quite competitive and you have to provide a solid business plan in order for people to take interest in your business idea.
Angel investors are people with excess cash and a keen interest in investing in new start-ups. They usually operate in groups to screen out many potential investment options. These are experienced businesspersons and fall among the ideal funding options for any new business. Along with their capital, they can also offer mentorship and advice to new entrepreneurs which is of immense value at the start of your business.
Today, angel investors have helped start many successful businesses. They offer their capital and advice in return for a specific percentage of equity in the business. It is basically a win/win situation for both, making it one of the most lucrative funding options.
Venture capitals are professionally managed funds interested in businesses that have solid potential. They invest in a business in return for equity. However, they tend to exit a business once an IPO (initial public offering) or acquisition of the business happens. They evaluate the business in a broader perspective and determine if it is going to sustain the test of time.
Venture capital funding options are ideal for small businesses who are beyond the starting phase and already generating sustainable profits. You must have an exit strategy if you want to lure in a venture capital investment. One downside of venture capital investors is that they tend to attach high expectations from businesses. Therefore, if your business is under performing, they may not be very interested in you.
If you want to grow really fast, you definitely need outside funding options. If you bootstrap and remain without external funding for too long, you may be unable to gain market opportunities. While the surfeit of lending options may make it easier than ever to get started, responsible business owners should ask themselves how much financial assistance they actually require before making a final decision.
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