SIMPLE WAYS TO RAISE MONEY FOR NEW BIZ

Category: SME toolkit Published on Saturday, 26 March 2011 01:00 Written by with Bridget Olotu Hits: 1246

While the options may look very simple and even simplistic, but today creative financing is one way to secure financing for your business without having to go to the bank. At some point in time, successful business owners today and even corporations had employed one or many of the options to attract funding for their business ideas or outfits.

Use your own savings/adopt self-financing

I would say the best way to go about getting capital is to first start on your own. Whether you’re working or can get money from friends and family, you should try to get as much “in-house” as you possibly can. While being an entrepreneur is about the unknown and uncertainty, the more planning and prepared you are for future situations the less you put yourself at risk.

The more you are able to be in control in your business, the better. The fact is that most people however sweet they are to you may not be willing to invest in your business unless they can see some success. So you have to show commitment and get your business off the ground by throwing in your savings, i.e. if you very well believe in the success of your business. This is even more important because everyone wants to see what you have put in yourself before making any commitment on their part.

A finance expert once advised an audience seeking funding for their start-up businesses that the best way to get their own cash for their business was for them to make it themselves. So, it’s always good to have a definite cash flow coming in before you start something as risky as a new business. No one would want to bet on a new business. You need to prove yourself first before someone can bet on you. My preferred method is to start a self-financing business.

If you can find a business with no major need for inventory or equipment, and withdraw no more than 10 to 25 per cent of the early profits, you’ll have 75 to 90% of cash flow available to pay current expenses and to finance growth. If you already have a job that meets your family’s needs, then let the business finance its own growth. One way to raise capital yourself might include looking around in your home to the assets you have but have not been using.

For instance, you have three cars, three refrigerators, and many assets that are many in the home; selling off some of these assets can help you launch your business without borrowing from anyone. If you are confident in your business, you can also use your stocks, bonds, pension plans, life insurance policies and real estate to raise the needed capital. Those who own homes oftentimes secure equity loans and use the proceeds to start a business. However, be very sure your business can deliver good returns before selling off your property or using these investment instruments.

One big stumbling block for many SMEs, though, is not having the discipline and patience not to start living off the profits until the business is self-sustaining. Many entrepreneurs have the mindset that they have to show off their success by spending money. However, any little hiccup in the cash flow, a few slow months, or unexpected expense, can cause the business to fail due to being under-capitalised. This is quite similar to individuals who win a jackpot and start spending money and acquiring debt beyond what the prize can cover. Using this method requires great financial discipline all the way.

Family members

One of the first places entrepreneurs go to when trying to raise capital for their small business start-up is their family members. Family members will give you money blindly simply because of the love and bond you share with them. Some call this “blood” money. Jeff Bezos of Amazon.com, Alhaji Aliko Dangote of the Dangote business empire and many other successful businesses today benefitted from family members at the starting point of their businesses. In fact, for Jeff Bezos, the father and mother used their retirement benefits and savings to support their son.

It took almost seven years before the business picked. However, the investment they made at that time transformed them into instant millionaires when the business became a success.  Though capital from family members may not be enough to see your business stand firmly, it’s going to give you a push and boost your morale to forge ahead.

Seek out financial support or contributions from your friends

I know raising capital for small business expenses by asking friends for money isn’t fun because your friendship can be threatened. A Portuguese proverb puts it this way, “If you want to lose a friend… ask him for money.” Nevertheless, you can win your friends over with your great business idea by presenting your proposition in a professional manner. Show them your business plan, explain to them why they should invest in your business, and answer all their questions.

To avoid complications in the future, make sure to have a written agreement stating terms and details of the loan or equity contribution. You wouldn’t want to fight with your friends over money, would you? If someone is giving you money for your business as a gift, be sure you obtain a letter from them stating the amount of money and that it was a gift.

This is a precautionary measure to avoid future complications and misunderstandings. Two important things to note is that seeking capital from friends, they might want to come on board as partners and your credibility will be a determining factor to your success with raising capital from them.

(To be concluded)