So, you have an original business idea designed to meet a sizable gap in the market. The big question is – how will you fund it? Any new initiative needs capital to set up the company, design a website and logo, purchase equipment and stock, and pay for wages. Getting this initial cash flow can be one of the biggest challenges for an entrepreneur to overcome. With this in mind, we’re about to run through five powerful approaches you can use whenever you need to fund new business opportunities.
Open up your Cash Flow
One crucial challenge that many new companies face is waiting for payments. It is customary to have payment terms of at least 30 days from the date of your invoice, with some businesses offering even longer payment terms. There are a couple of options you should consider to allow for steady cash flow while you wait for invoices to be actioned by clients.
If you are exporting goods, you might apply for export finance, which involves borrowing money against the value of invoices raised for overseas customers. If you have a dedicated customer base, you could negotiate shorter payment terms or offer an early payment discount. Both of these approaches will help you overcome the cash flow issues that arise as a result from your invoice payment terms.
Bootstrapping
As the name implies, bootstrapping means starting with very little capital, no external financing, and running your business through a very lean model. People often use the term when talking about startups.
In this model, you need to fund growth with the cash flow generated by the company. On the plus side, this approach means you maintain full control over the business and are forced to find a profitable model quickly. However, it can be challenging to survive and grow without external funding.
Seed Funding
Seed funding is also known as seed money or seed capital. It refers to financing from private investors to fund a new company’s set up or develop a new business idea or product. Investors (who are often the founder’s business acquaintances, friends, and family) receive an equity share. Sometimes, a company may receive seed funding from angel investors. These people are professional investors who look for promising new businesses to add to their portfolio.
Venture Capital
Venture capital is not the same as seed capital – it generally comes after the business is established. Instead of being sourced from people you know, it comes from venture capital firms. They seek out high-growth companies to invest in and make money when the firm blossoms and opens up shares to the public.
Other high profit points for venture capitalists include mergers and sales on the private market. If you are looking to start a business that provides a steady income for an extended period rather than aiming for rapid growth, venture capital is probably not for you.
New Business Bank Loan
The other option that many founders investigate is applying for a small business loan from the bank. One of the positives of a bank loan is that you can still make operational decisions without having any shareholder’s input. However, you will need to pay interest, and there are quite a few hoops to jump through before being approved.
You will need to consider your credit score, years of business experience, current assets, and customer base. It also helps if you have a robust business plan and financial projections ready to go.
With some research and careful planning, you can find the right type of funding for your small business.
