Got a brilliant idea for a new business? Congratulations, you’re already halfway there. The hardest part about starting a company is making that very first step. Making the decision, and coming up with a unique business concept. Trust me, most wannabe entrepreneurs don’t even get this far. The fact that you’re reading this piece, and seriously considering how to finance your project is fantastic.
So, let’s get to why you came here: finance options. There is no one answer to funding your company. Every business is different. Each with their specific financial needs, and monetary sources. I’ve seen my fair share of startups get off the ground, and I’m always intrigued to see how they’re funding the venture.
I tend to see the same few methods popping up time-and-time again. It seems there is a common logic, but the paths are getting a little more creative. Traditional financing and loans are harder to come by, especially after the recession. Let’s take a look at some of the most popular options.
There are some phenomenal crowdfunding successes out there. Fledgling companies are using sites like Kickstarter to find the early burst of finances. One of the biggest success stories is the Oculus Rift virtual reality headset. The company went from nothing to securing over $2 million in Kickstarter funding. A little while later, the company was bought by Facebook for $2 billion. Crowdfunding is a real, viable option for small businesses, especially in the creative industries. The tricky part is building a community and target audience that cares about your product. So, start your efforts there before asking for money.
Presales work in a similar way to crowdfunding. You build a community of hungry prospective customers. Tease them with images and details of your forthcoming product, and gather media attention. Then, put the item up for pre-sale. Customers will pay their money, and you’ll receive the cash well before the product is ready for market. Now, you have all the money you need to complete the production process. Presales are a good business decision, and it’s great for your customers who slowly build their anticipation for the release.
Friends and family
A lot of fledgling entrepreneurs turn to their family or friends for a loan. They’re often more likely to lend you the money, since they already trust and believe in you. A family member is also less likely to apply pressure like a bank, investor or lender. You’ll get the money, and have a certain amount of independence to build the business. They may even grant you a smaller interest rate than your bank. Many people don’t like to ask their family for help, and mixing business and family isn’t always ideal. But, it is better than an investor breathing down your neck.
A traditional bank loan is still one of the most popular ways to fund your company. Most entrepreneurs turn to the bank first. And, in fact, most lenders are more than happy to grant you the money. There are, of course, one or two caveats here. The bank will need to see a scrupulous business plan that outlines your monetisation strategy. Banks need assurance that their investment will yield a return, and secure their repayments. They may offer the money in stages, in return for you reaching each of your goals laid out.
I’m a big fan of invoice financing, especially for freelancers and small startup businesses. The advantages of invoice finances are numerous. For example, if you have lots of clients, you never quite know when the money is going to come in. It’s often dangerous to your cash flow. With invoice financing, you’ll get a loan against your outstanding incoming payments. If clients or customers are paying late, you can get an advance on those payments. When the money finally comes in, you can pay it back.
Investors are a vital part of modern business. But, I strongly advise approaching them only at the right time. Investors are not a life boat. Don’t go to angel investors when your company is sinking. You’ll lose all your control, and you’re not presenting a very appealing business. Instead, approach investors when you’re on the brink of something special. Show them that your business works at its current level. Tell them you need investment to take things to the next level.
As you can see, there are many different ways to fund your startup business. Choose the path that’s right for you, but never borrow more than you can afford. Good luck!