SIMPLE WAYS TO RAISE MONEY FOR NEW BIZ (III)

Category: SME toolkit Published on Wednesday, 30 November -0001 00:13 Written by Bridget Olotu Hits: 590

10. Private Investors

The next avenue you can use to raise capital for your small business start-up or achieve your goal of expansion is to approach private investors. These private investors are individuals that invest in business ventures with the hope of receiving a massive return on investment. They are usually rich and experienced individuals when it comes to business and investing.

Before approaching private investors; you must make sure your business idea is bankable and backed by a strong business plan. You must also make sure you are capable of defending the proposed budgets stated in your business plan before these investors.

11. Using Profits/Retained Earnings

As noted, SMEs can also finance their operations by retaining their earnings. Strategies concerning retained earnings vary. Some corporations, especially electric, gas, and other utilities, pay out most of their profits as dividends to their shareholders. Others distribute, say, 50 percent of earnings to shareholders in dividends, keeping the rest to pay for operations and expansion.

Still other corporations, often the smaller ones, prefer to reinvest most or all of their net income in research and expansion, hoping to reward investors by rapidly increasing the value of their shares. As an SME, the few years of your business is no time to brandish your new-found wealth. It’s a time to invest and reinvest your profits and/or retained earnings in the business. It will pay off with time.

12. Angel Investors

Angels are rich individuals that have resolved to use a portion of their wealth to support young entrepreneurs and small business start-ups. All you have to do is fit into the criteria set by the angel investor and you will see your start-up funded, provided you have a bankable business idea backed by a strong business plan. Angel investors are also private investors interested in making more on their capital than they can make through traditional markets such as mutual funds or publicly traded stocks.

These “angels” can be your accountant, attorney, doctors or other individuals who seek out new businesses to invest in return for equity ownership. Usually providing additional capital in the range of N1,000,000 to N10,000,000 or more, expect angel investors to demand high returns for their investments. Relative to venture capitalists, though, angel investors are less demanding and can also be expected to provide expert guidance and mentorship for the start-up. As you explain your plan to them, and ask for their advice, casually ask them if they’d mind letting you know of, or steer your way any potential investor they might happen to meet.  Do the same with your banker.  Give him a copy of your prospectus/business plan and ask him if he’d look it over and offer any suggestion for improving it, and of course, let you know of any potential investors.  Note, however, that most angels and venture capitalists do not invest in home businesses.

13. Venture Capitalists (VCs)

Approaching a Venture Capitalist is one option you might not want to consider because VCs are tough and strict on their funding terms. Only few businesses ever pass the test of VCs because of their tight rules. If you pass their requirements, VCs will provide the capital you need in return for equity in the start-up. They will also bring their experience on board to make sure your business survives and grows, so they can get back their investment. Venture capitalists are also professional investors who may be in charge of a large pool of capital gathered from a range of sources.

These firms invest in new, even high-risk or speculative businesses without a proven track record, with the potential for rapid growth and high returns in a short time.  They generally want equity or part ownership of a business in exchange for substantial returns (25 to 40 percent or more) when they exit typically in three to seven years.  Particularly in the Internet sector, several venture capital firms have achieved capital gains of 300 to 500 percent, which are used to offset by a wide margin any losing ventures.

14. Licensing

Another important point that people often overlook is licensing your idea to someone else – if appropriate. This saves you having to raise significant start-up capital yourself and is virtually risk-free.

It’s easier said than done, isn’t it? I know that even getting large corporates to even make time to hear about your idea isn’t easy. People are doing it though. You don’t say until you try!

15. Factoring Services

This may not be popular here. However, factoring is one way to raise capital for your business by selling your account receivables to an individual or corporate at a discount. For instance, let’s assume, you are owed N500,000 as a business. Let’s say you had supplied a firm some goods and are to be paid after 30 – 60 days but you are cash strapped and need money to finance your other operations or meet your pending obligations.

You can sell your debt or account receivable less than it’s worth for say at 15-20% discounted rate so you can quickly raise cash for your business. The factoring company or factor then goes ahead to earn the receivables when they are due or paid for and earns a profit doing so.

(Concluded next week)