How to Build Capital for Your Small Business
Whether you operate an established company or are just starting out working for yourself, it is frequently the case that one of the most challenging obstacles you will have to confront is raising the capital required to get your unique idea, product or service off the ground. It’s all very well having a eureka moment, but persuading someone to lend or give you the necessary cash to bring it to market can be more difficult than you might imagine.
The most popular sources, depending on the sum required include family members, friends, banks or financial institutions.
Preparing a business plan
Before anyone is going to invest in your venture you must be prepared to spend some time putting together a viable business plan capable of withstanding close scrutiny by professionals in the financial sector. You will also need to put a realistic figure on both the current and future estimated value of your company over the first three to five years.
There are a couple of critical points to bear in mind when putting together a business plan. First, it must be realistic; a professional financier will spot any glitches from a mile away and you must be ready to defend your figures and have an in-depth knowledge of the effects any variation from your sales projections will have on profit margins. Secondly, and this may sound counter intuitive, be sure to ask for sufficient funding. It may be tempting to try and make do with less than is really required in the hope that your potential investor may be more inclined to agree to a lower figure, but a savvy financier will zone in on that too.
Early on in the process you should decide which funding option is most suitable for you and your business. While a friend may be able to provide you with a thousand or so dollars he or she may be unwilling or unable to stump up $500,000. Similarly, a multi-national venture capital company may not be interested in providing funding of less than five figure numbers.
Sources of funding
If you are establishing a start-up, it might be worth taking the time to look at some of the people who have gone through a similar process and who have built up incredibly successful corporations. A great example is David Kiger, who started his Worldwide Express logistics company back in 1995 with just $5,000. Today, the company has annual sales of over $750 million and operates on a global basis. Kriger has dedicated himself to offering advice and assistance to underprivileged individuals striving to take that first step on the entrepreneurial ladder.
Friends and family – as mentioned previously, this is one of the most common sources of funding, especially in cases where the amounts involved are relatively small.
Self-funding – as with friends and family, this form of funding is ideal, just so long as you are aware that you stand to lose all or high percentage of your savings should the venture fail. You should be particularly careful when considering using the family home as collateral. Remember, if it all goes wrong, you risk losing everything and potentially ending up homeless.
Credit cards – can be a useful source of short-term cash, but interest rates tend to be higher than other forms of loan, so keep them as a last resort.
Small business loans – have been around forever and though not as easy to arrange as in the past are still well worth considering. Be sure to have a detailed business plan at the ready to maximize your chances of success.
Crowd funding – is the new kid on the block. Crowd funding websites are easy to find and once you locate a suitable site contact the group, provide details of your business plan and let them know what rate of interest you are offering.
Venture capital and angel investors – will check out your business plan and, hopefully, offer you the cash you are looking for. The downside is that they will want to take a share in your company and have a say in how it is run. With this in mind, be sure to choose carefully; you and the investor(s) may be working together for many years.
When setting up or growing a company locating essential funding can be a daunting task. However, with a little research and advance planning there really are a significant number ad range of highly reputable lenders out there, just looking for viable businesses and entrepreneurs to invest in.