82% of business that fail, do so as a result of cash flow problems. Running a business is not cheap – from production costs, rent, marketing, to employee salaries, the costs continue to build and build. And all these costs come before you’ve even paid yourself! A recent study found that the median costs for getting a start-up off the ground is $15,000 – a lot of money but not an impossible sum to attain.
It can take many years before a startup becomes profitable. For this reason, you can’t rely on sales to keep your business alive. Here are some techniques you can use to get the funds your start-up needs.
First stop when looking for startup funds should be your own resources. 82% of startup funds come from either the owner or their family and friends. While 77% of small business owners use their own savings to fund their business.
When borrowing money from those close to you there are some things to consider:
- Your friends and family may not have much money to give.
- They may want equity in the startup in return for their money.
- Business relationships with family and friends can often end badly and ruin relationships.
Funding the startup yourself is the preferred option for a number of reasons. Firstly, it means you’re not in debt and aren’t sharing equity with anyone. Using your own money forces you to be careful what you spend your funds on. The flip side is you drain your savings account in the process, leaving you no money in case of an emergency. So if you do go down the self-funding path ensure you have additional money set aside for a rainy day.
2. Business Partners
Having a business partner is a great way to increase the collective brainpower of the business and also the possibility of having more funds to play with. A business partner who puts their own money into the business will be just as invested in ensuring they get a return on their money. A recent study highlighted that having a business partner results in the startup raising 30% more funds on average, while being 19% less likely to scale the business too early.
3. Bank Loans
A loan from the bank is always an option for the startup seeking some capital. As the owner you’ll need to go through the application process and hopefully qualify for the loan you need. Banks are generally supportive of startup venture growth and will work with you to find the right loan and interest rates you can afford.
A new-age way to raise funds is through a crowdsourcing site such as Kickstarter. Crowdsourcing enables you to raise money from anyone with an internet connection who wants to support your startup. You can specify how much you want to raise, offer incentives for people to donate and use the campaign page to tell the brand story and vision. Crowdsourcing works best for smaller amounts of capital needed for short-term initiatives. For example, it can be good for a new product launch, but not great for keeping the business afloat long term.
5. Angel Investors and Venture Capital
If you’re hoping to grow and scale your business in a short amount of time, then capital from an investor may be the best option. Significant capital from an angel investor or venture capitalist will get you up and running in no-time with enough funds to set up your office, hire employees and pay all overhead costs.
An angel investor is an established business person who specializes in investing in startups. You’ll need to sell the company vision, goals and potential profits to the investor to prove to them that the startup will be a success and that they’ll get a return on their investment.
Venture capitalists are ideal when BIG money is required. The catch is that they often expect a quick ROI and an exit strategy if things go south.
Unless you decide to bootstrap the business yourself, all the other methods will require you to effectively pitch your business idea to other people with the hope that they will invest in your business. If you’re a fan of the TV show Shark Tank then I am sure you’re familiar of what it’s like.
I have a great news for you if you’re looking raise money for your business and turn your business idea into an empire!
If you want to nail your pitch and land an investment deal then there is no one better to learn it from than a Shark. The people’s Shark, Daymond John is doing a 100% FREE webinar to teach you exactly just that!
Daymond must have heard at least hundreds of business pitches on Shark Tank by now. He can definitely show you how to crush your next investment pitch and take your business to the next level!