How to Overcome the Startup Funding Challenge
May 1st 2019 at 8:08am Published by sharpshooteradmin
Funding day-to-day operations is always a challenge for startups. The lack of funding options is one of the main reasons business owners end up filing for bankruptcy and liquidating their setup.
Regardless of the stage your business is in, you need a push to keep things moving. While businesses that are established and successful have no issues in gathering these resources, startups have to overcome the funding challenge to break-even.
Despite the prevalence of venture capitalists, private funders, and other financers, small business owners often face difficulty in arranging funds. Most banks consider startups to be ‘too risky’ to invest in.
Therefore, if you are looking to overcome the funding challenge, here are some strategies that you should adopt.
1. Have an Idea of the Amount You Need
Regardless of the source of funds, you need to have an idea of the amount of money you need. Most people say that you should raise as much money as possible. However, as many people learned it the hard way, more is not always better.
If you have not chalked out a business plan yet, get working. A well-thought-out business plan makes it easy to apply for commercial funding. A business plan must forecast its financial performance for at least one fiscal year. The forecast must include the cash inflows and outflows expected from the capital project you’re planning to undertake. You may also need to compute the net present value of all cash flows.
It is also imperative to justify the projected statistics, facts, and figures. Once you receive the investment required, you need to create funding repayment schedule. Rather than buying fancy equipment and furniture for the business, you should invest the borrowed amount in activities that ensure a continuous inflow of revenue.
It is usual for businesses to face a few ups and downs along the way. Still, you need to show consistency in your performance. One way to maintain consistency in your performance is by generating a positive cash flow. Positive cash flow is essential, especially for startups, since it boosts a company’s ability to repay its funding.
Calculate how much money you require for the necessary operations, including training, hiring, marketing, and automation. You also need to ensure that the request for small business funding is in line with your financial projections.
2. Find the Right Funding Option
The next thing you need to be wary about is the funding channel you choose. Today, there are many new online commercial funding options available. These funding options are ideal for small business owners.
However, before you take this route, it is essential to choose the right funding option. Like all critical business decisions, the first thing you need to do is to introspect. Using your own savings and earnings is the easiest and cheapest option to fund your operations and capital investment decisions. Look into the amount you have saved and the alternative sources of income. Most business owners work full-time jobs while managing their business ventures simultaneously. They continue doing so until their startup achieves break-even.
You can also ask your family members and friends for funding or an investment. This option, however, comes with considerable risks. In addition to putting your business’s future risk, you are also putting personal relationships in jeopardy. This is why asking professional funder is always a better option.
Bank funding are another reliable funding option. Most bank funding, however, require a summary of your tax returns and gross and net profits, more commonly known as credit history. Banks also ask for collateral such as equipment or real estate in addition to the financial projections and statements.
The final option to consider is that of venture capitalists and angel investors. Venture capitalists are professionals that can also guide you on how to grow the business. Their guidance and help steer the ship of a startup clear from the storm of funding challenges.
Most venture capitalists only invest in businesses that are designed for rapid growth and huge expansion. This is why it is essential to have an idea that can be groundbreaking and for you to back it to the core. Angel investors have their advantages and disadvantages, but both of them reenergize your business functions.
3. Develop an Exit Strategy
Having a Plan B is an indicator of people who are practical and adaptable to the situations ahead. It is essential to develop a strategy if things don’t go the way you expect them to. Many business experts believe that an exit strategy significantly improves the chances of funding.
An exit strategy indicates that you have a plan for all scenarios meaning that you are mentally ready to tackle all problems. This might sound like a defeatist approach. Still, it convinces investors and forces them to believe in your model of success.
Having everything outlined and clear before visiting investors is the key to success for all startups. An integral aspect of a business strategy is to have the ability to pull out at the right time before the damages hurt the venture.
We know finding commercial funding can be challenging. It requires you to have a comprehensive knowledge of the business and its environment. Whether you secure a long-term funding or mortgage your asset, this funding is crucial for the development of your business.
As an owner and the person in charge, you need to start to look for funding six months before you find yourself in financial trouble. The timeline can change drastically, but as an owner of a business, you need to be ready for the worst.
The tips above provide you with a brief insight into the world of securing small business funding. However, following them will take your business a long way in ensuring successful returns.