Thousands of people have seemingly great business ideas, but relatively few individuals are able to successfully bring their business ideas to fruition. There’s clearly a big difference between ideas and delivery.
In this article, we consider such issues in greater detail, examining how your business funding needs can be met.
In order to ensure that you create a viable business, you have two key hurdles:
1. Getting the business up and running
2. Managing the business successfully
If you don’t get as far as getting your business started, then you’ll never be able to convert your idea into a successful business. But, even if you do get the business started, there’s no guarantee of success.
In order to put the challenge into some perspective, let’s consider how startups have historically performed: although figures vary, it’s estimated that more than 50% of businesses fail within the first 4 years. That’s a pretty dismal statistic and one that might cause concern, as you think about launching your own startup. The question that naturally stems from that statistic is a critical one: why do so many startups fail?
The answer is that 82% of startups fail due to cashflow problems. Getting the financial side of your business right is clearly going to be central to your chances of success.
Identifying funding needs
Before you start to think about where you will source funding, you’ll need to identify how much you will actually need. This is an area of your business that requires considerable thought. In the next section of this article, we’ll be discussing who might be interested in providing you with funding. In most cases, prospective funders will want to be assured that you have a clearly thought out business plan.
There’s a real skill to writing a great business plan and the greatest pitfall that entrepreneurs fall into is the rather natural situation of being overly optimistic about likely outcomes. Your own business plan should consider realistic expectations and will need to be detailed enough to guide your business. This shouldn’t be a document that, once written, will simply be hidden from view.
Cashflow projections should certainly form part of the overall plan and investors will want to see what expectations you have in place for forward sales figures. There are two areas where business plans can sometimes be weak:
1. Forgetting to take into account your own needs. While you are building your business, you will still need to live your life too. Whether that means paying the mortgage, keeping your car on the road, or ensuring that there is food on the table, you won’t be living for free. Don’t forget to include figures for how much you will need to extract from the business in order to keep going.
2. Under-estimating marketing costs. Launching a new product or service is almost always more expensive than most estimates suggest. You’re likely to be going from a standing start. If you want to ensure that you’re not lost in the wider business fog, then you’ll need to allow for a decent marketing budget
Once you have a comprehensive business plan in place, you’ll be able to seek funding.
Common funding sources
There are a number of funding sources that have been successfully used by other entrepreneurs. Each source will have both advantages and disadvantages:
1. Family and friends: an obvious first source of funding, since these are the people in your life that will have the most faith in your abilities. But beware the danger of these relationships turning sour if your business gets into difficulties
2. Banks and traditional financial institutions: A first port of call for many entrepreneurs and experiences vary. Some banks are still very conservative in their lending habits, so make sure that the business plan is watertight and be prepared to spend time discussing the details
3. Government and research grants: Might their be the option of gaining funding from the public sector. Depending upon the nature of your startup, this way well be an option
4. Venture capital: typically, venture capitalists take equity in your business in exchange for funding. They will have an expectation of deriving significant returns, meaning that they can be a great source of funding, but that you’ll be under great pressure to deliver results from the outset.
5. Personal investment: last, but by no means least, is your own money! If you’re not putting any of your own money in, then many other investors might rightly ask whether you really believe in your own project
As you can see, funding is vital to any startup business and there are many ways of gaining that initial funding. Having a clear plan in place will boost your chances of raising the funds that you require.