7 ways to finance your startup business

So, you think you have a billion-dollar concept for a new firm or start-up – what do you do now? You’ll probably need a website, some tech staff, office space, and, of course, enough money to pay your rent each month.

That is to say; you require financial assistance. Whether they’re launching a clever new software or a chic café, most firms and entrepreneurs need at least a small amount of money to get off the ground in the early days.

The good news is that it’s available from a number of sources (and many that are frequently overlooked). Speaking to a financial or business advisor is the best way to understand what is the best option for your business, however this beginner’s guide to finding money and can help you to start to understand which form of financing may be best for your needs.

Recommended reading: How to manage your finances as a contractor

1. Begin with self-funding

Many business owners use ‘bootstrapping,’ or scraping together whatever personal funds they can to get their enterprises off the ground. Savings accounts, credit cards, and any home equity lines of credit are frequently included in this list.

Using the money you already have rather than borrowing or raising money is an excellent strategy in many circumstances. Several entrepreneurs continue to bootstrap their businesses until they are profitable. This is useful since you will not be burdened by enormous debts and monthly payments, especially if you encounter issues along the way.

Bringing in outside sources of funding, on the other hand, may be advantageous if you want to develop your company quickly. So, what happens if you run out of money or decide you need more money? There are a few popular sources of funding to start with, although it will ultimately depend on the type of business you’re launching.

Recommended reading: How sole traders can better manage their cash

2. Think about your friends and family

While asking your friends and family for money may seem inappropriate, reaching out to your closest friends and family can be a good first step before seeking outside help. And it never hurts to ask. Aunt Anna is unlikely to sponsor your entire new social network for cat leads, but she could be impressed enough to give you a few thousand bucks to get you started.

However, before contacting your friends and relatives for cash, you should have a business strategy in place. You may tell them precisely what you’re selling, how much you’ll charge, how you’ll make money, and if you’re asking for a loan, an investment, or whether they should expect a return on their investment in your company, and if so, how much.  You will also want to ensure that you have a written agreement in place, outlining how the loan will work and everyone’s responsibilities.

3. Investigate alternative funding options

Another option is to use crowdfunding websites like Kickstarter and IndieGoGo, which give you a platform to gather money from supporters all over the internet. You’ll design a campaign and set a fundraising goal, as well as provide incentives for contributors who commit a particular amount of money. Then you generate funds for the campaign over a set length of time. With Kickstarter, you can only retain the money if you reach your goal in full, but you may keep anything you raise for a cut of the proceeds with IndieGoGo.

4. Consider getting a loan

You might be able to qualify for a standard bank loan if you can prove that you’ve begun getting traction and earning money (and that a loan would help you make even more). Several banks have lately pledged enhanced support for small businesses. While each bank and scenario is different, this might be a suitable option if you need money.

5. If you’re starting a tech company, look to angels for help

If you’re starting a tech company, you’ll need more money than bootstrapping and crowdfunding can provide to truly get going.

There are likely many expenses, such as hiring people or obtaining office space, for example. You’ll almost certainly need to seek outside funding. Angel investors, typically accomplished high net-worth business experts eager to invest in potential businesses, are an excellent place to start. An angel investor may often invest anywhere from $10,000 to several million dollars.

Ask other entrepreneurs in your network for local referrals. You might also check out AngelList, a website that connects entrepreneurs with potential investors. More than 1,000 start-ups have received funding through the site thus far.

In addition to making direct loans, Angel investment clubs may arrange events or competitions that give budding entrepreneurs extra networking possibilities. Look for these organisations in your neighbourhood.

6. Raise a Larger Amount of Capital

You’ll need to look at venture capital if you require significant cash (at least $1 million). Venture capitalists (VCs) are more likely to demand a detailed and well-thought-out business strategy, but they can also provide greater sums of money.

VCs often invest in several different firms for their customers, hoping to profit from one (or all) of them to recoup their losses. That means they’ll see a variety of firms, and you’ll have to make yours stick out. Also, consider that VCs often want a return of 3-10 times their initial investment within the following 5-7 years, so you should have an exit strategy in mind.

The ideal approach to meet with VCs is through referrals from other entrepreneurs or investors, so if you’ve decided to seek VC funding, it’s time to tap into your contacts (and their networks) to see who you can speak with. What if you don’t have any contacts? While dialling a venture investor on the phone isn’t easy, it’s an excellent place to start.

7. Consider your insurance from the start

While worrying about financing your project at the start of your business journey is completely understandable, you may also want to consider protecting your business with insurance. Business owners open themselves up to many risks when opening a new company, some of which could potentially lead to financial ruin before it even gets off the ground.

At BizCover, there is no “one size fits all” solution for small business insurance*, each business has its own needs, and so it provides different cover options for over 6,000 occupations across Australia. With BizCover, you can get the right insurance to ensure your financial investment (your business) is always protected, so you can get back to more important things like financing your business.

*This information is a general guide only and does not take into account your objectives, financial situation or needs. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this web page is general only and should not be relied upon as advice.© 2021 BizCover Pty Limited, all rights reserved.
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