Any form of business require money to operate a business. Business finance is the cash resource you need to construct and run your business. Business finance means the process of investing credits and fund sources into the business.
Finance is the basic foundation for running a business. It involves the purchase and management of funds so that the business organizations will be able to have their operations run successfully an efficiently. The process of procurement is a regular part of an organization strategy because the capability to purchase some required materials will decide if business operations will continue.
According to a recent survey, over 94% of new start-up businesses fail to empower during their first year of functioning itself. Inconsistent funding turn-over is considered to be one of the most important reasons. Liquid cash or Money is the main source for running any form of business.
The long run of careful, hard-working yet fulfilled journey from creating an idea from scratch to money generating business needs a bloodline named capital. That’s why, at almost every phase of the business, owners or business entrepreneurs raise themselves a genuine query – How do I manage finance for my start-up business?
Every single process happening inside a company has to be managed with the funds and credits invested into the business. A survey says that only half portion of the small businesses survive in a long run i.e fifth year of operation and only 30 percent of the start-up business have a successful journey of ten years. So, basically money should not be a hassle to make your dream happen.
Now, when would you require financial resource for a firm, depends majorly on the nature and form of the business. But once you have comprehended the need for raising finance, below listed are some of the different sources of fund available.
Here is a complete guide that lists fund raising options for your start-up business organizations that will enable you raise capital fund for your business. The fund-raising options are suitable for Indian business and global business across the world.
1. Create a Brief Business Plan
Before you begin with anything else, you need to have a vivid and clear understanding of how you plan to function your business. A business plan will upgrade your chances of securing fund money: Companies or organizations that have a detailed business plan also have increase in their growth rates.
Below listed are some reasons:
First and foremost, it’ll be difficult for you to raise funds for your business from anyone without a business plan. Different types of investors, which we’ll discuss shortly, will need to see financial projections before they even consider giving you a dime.
This plan will also set you up for success. Once you get into the daily grind of your business operations, you’ll always have your plan as a reference to remind you how to proceed.You may forget some ideas a year or two down the road if you don’t have everything in writing.
Your business plan should have a clear description of your business.
- Who are you?
- What do you provide in your business?
It should also comprise a market research and analysis. This will reveal facts information and research about your peer competitors as well as your future target in the market. You’ll also need to highlight draft the organization structure and nature of your company. Have precisely defined roles for beginners, managers and other positions within your company. Perhaps, the most important part of a business plan is the finance. Do your best to include financial projections for the next three to five years:
2. Self-Funding Your Start-up Business
Self-funding, also known as bootstrapping, is an efficient way of start-up finance funding, especially when you are just initiating with your business. Start-up entrepreneurs often have difficulty getting fund without highlighting some transaction and a future prospectus plan for possible success.
Instead of seeking help from third-party investors, you can contribute from your own savings or can get money from your close family and friends to invest in your business. This will be an easy method to raise due to less effort, plus less or no interests will be included. In most situations, family and friends are convenient with the less or nil interest rate.
Self-funding or bootstrapping should be measured as a first funding option because of its easiness. When you have capability to run business with your own money, you are tied to the market.
On a future perspective stage, investors consider this as a potential point. But this is suitable only if the initial investment and need is small. Some businesses require money right from the initial day and for such type of businesses, self-funding may not be a right option.
Bootstrapping is also about extending resources – both financial and other ways.
3. Contact the Local Banker or Online Investors
Seek the help of the local bankers and third-party investors when you are collecting money for your business.The local bankers or investors would like to know the company details, organization structure, company type and future plans about your company.
Based on the company size, type and structure the local bankers would offer the loan accordingly.
4. Crowd Fund Raising option
Crowdfunding is one of the innovative ways to get funds from a start-up organization. The crowdfunding option has been earning lot of popularity. It’s like funding a loan, pre-requisite order, getting contribution or investments from more than one individual at the same time.
This is how crowdfunding option actually works – A business entrepreneur will outline detailed structure of the business on a crowdfunding platform. The entrepreneur will specify the goals of his business, plans for making money, how much funding is required and for what reasons, etc. and then target consumers can read about the business description and provide money if they loved the idea. Those providing money will make pledges with an assurance of pre-purchasing the product or supporting through donation, any individual can donate money toward assisting a business that they really trust in.
Why you should think Crowdfunding as a fund-raising option for your business:
The best thing about crowd funding is that it can also increase interest and hence helps to market the product along fund-raising. It is also a benefit if you are not sure to assess if there will be any demand for the product you are launching and working.
This process can eliminate the investors and brokers by placing funds in the trust of common people. This step also might attract venture-capital investors along the line if the start-up company has a positive campaign.
Also keep in mind that crowdfunding is a driven place to earn fund raising, so unless your business is yet to be stable and can attract the attention of the target consumers through just a company description and posting images online.
Some of the best crowdfunding sites in India are Indiegogo, Wishberry, Ketto, Fundlined and Catapooolt. In USA, Kickstarter, RocketHub, Dreamfunded, Onevest and GoFundMe are prominent crowdfunding websites.
5. Approach Angel Investors for Your Start-up
Angel investors are individuals with excess cash and a great interest to invest in new start-up organizations. They also work with community of networks to jointly show the proposals before investment. They can also offer training or advice close to the capital.
Angel investors have helped to start up many prominent companies, including Google, Yahoo and Alibaba express. This alternate form of investment normally occurs in a company’s beginning stages of growth, with investors expecting upto 30% share. They have a desire to take high level of risks in investment for more returns.
Angel Investment as an alternative funding option has its inadequancies too. Angel investors idevote lesser amounts than venture capitalists.
6. Contact Venture Capitalists
This is where you make the big wagers. Venture capitals are jobwise managed funds who invest in start-up companies that have huge possibility.
They usually devote in a business against equity and exit when there is an attainment. VC’s provide knowledge, training and able to access where the organisation is traveling, calculating the business from the maintenance and ability point of view.
A venture capital investment may be suitable for start-up business or companies that is far away from the start-up phase and already increasing revenues. Rapid-growth companies like Flipkart, Uber, OLA etc with the help of exit strategy already maintained well can gain up to tens and dollars that can be used to contribute, form network and grow their company quickly.
However, there are a few disadvantages to Venture Capitalists as a funding option. VCs have a short lead when it comes to company devotion and often seek to reimburse their investment within a three- to five-year time plan. If you have a product that is taking longer span to get to market, then venture-capital investors might have second thought and not be interested in your business.
They typically look out for larger opportunities of scale that are a more stable, companies having a strong sized team and a good transaction. You also have to be very flexible with your business and sometimes you have to give up a little bit control. If you do not show much interest in too much training or some negotiation, this might not be your best option.
Some of the known Venture Capitalists in India are – Nexus Venture Partners, Helion Ventures, Kalaari Capital, Accel Partners, Blume Ventures, Canaan, Sequoia Capital and Bessemer Ventures.
7. Minimize the Business Operation Costs
Evaluate your start-up business costs. You may not need to raise as much income as you first thought. Make the generated money you already owned last for some years. Instead of paying for a physical store-front or office, you can work from your home or a shared office space.
Pay for goods and services instead of paying beforehand for large quantities of products. Use cost-efficient and money-making raw materials. Think innovatively among other competitors.
Instead of paying for specific products or services, provide your services in return. This may work out if you’re working with other start-up companies which matches to your current situation. Just give your best effort to keep the operating costs as low as possible.
8. Search for Trust-able Partnership
We all have heard of the saying “Two heads are better than one.” Getting a planned partner for your start-up company can help to enlighten the development of your business. In fact, over 80% of companies say partnerships are vital for the business growth. Your partner should have a secure bank account as well. Partners also reduce your responsibility and less your burden.
On the other side, you’ll be able to get only half of the profits. You may secure even less if you given away equity to third party investors. Keep in mind you find someone you can trust and rely upon. While your strategic partner may be able to bring new innovative ideas and solutions to your discussion, never mind about conflicts and rough agreements.