Lack of business capital should not necessarily be a barrier to pursuing a business idea to profitable fruition. There are some financing options a business promoter can pursue to actualise the dream
Many good business ideas never get off the ground. A major reason for this unfortunate situation is the lack of capital by the business promoter(s).
Most people with great business ideas have had to abandon their dreams due to a lack of personal finances to start the business. Fortunately, some other options can be pursued to get this needed capital to take the idea off the ground.
However, before you decide to go out to raise capital and funding from outsiders you need to do some strategic exercises that will help make your fundraising task easier.
- You need to be formal about your business endeavour. Register the business with the Corporate Affairs Commission (CAC) and other relevant bodies, especially the regulatory agencies relevant to the industry/ sector you intend to operate in.
- Prepare a business plan: This should be a financial, strategic and marketing plan of how you intend to navigate the business from take-off point to break even and profitability points. It should state the cash flow analysis, financing requirements, projected incomes and expenditures and other critical financials. This plan will enable potential investors to take an informed decision on whether to invest in your business or not.
- Determine your exact funding need: from your business plan, project your financing needs in the short-to-medium term period. This would be made easier by extracting from the projected financial performances in your business plans.
- Open a business bank account: get a bank account for the business. Note your business is different from your person. As such you need a bank account to receive income and money due the business as well as pay for expenses. This will also help build a financial record for the business, which in turn will help in your funds raising task. Carefully study the type of business accounts available for opening in each bank and decide on one that will offer the best advantage to your business to access good funding later.
- Hire a good management team with the necessary accounting and financial management skills needed by your business to access good and manage your funds. If you do not possess these skills hire someone else to perform these critical functions. If you do not have the money for a full-time hire, get a part-time employee or consultant to perform these functions. Do not fall into the temptation of doing these tasks yourself. The presence of a skilled professional in charge of the financial management skills in a business helps to build confidence in the finances.
- Research on types of outside funding available: there are lots of varieties of ‘other people’s money available to your business from other sources. These include:
- Debt financing – borrowing from sources outside the business to finance the business. These are usually the most used outside financing options by entrepreneurs. These sources of finance come with a price: interests that must be paid with the capital sum borrowed, at an agreed later date or interval. And it most times has a condition attached – collateral as security to guarantee repayment. So it might not be good or readily available to a new business without sufficient revenues/ cash flows and collateral. These finances are mostly offered by commercial and microfinance banks.
- Equity financing – Equity financing involves asking other people to invest (to give capital) in exchange for shares and equity stakes in the business. This type of financing does not require paying the money back or paying interest on the investment. But a major disadvantage is the loss of full control of the business by the owner as he /she has to dilute ownership and sometimes control with the other new investors. A business owner has an array of angel investors, venture capital firms and private equity firms to get equity financing from. A relatively good and bigger company can also access equity financing from the stock market, subject to the appropriate regulatory control.
- Hybrid financing – this is using a combination of debt and equity financing for the business.
- Grants – This involves seeking financing from the government through its various policies and programmes, international multi-lateral agencies and even some multi-national companies. In some cases, businesses in innovation or socio-economic development sectors have opportunities to access these grants.
- Finally, decide on the right source or mixes for funding your business: from the available array of
Outside funding available decide which one(s) will be good and perfect for your business. Major things to consider should be the funding requirements- amount, duration; your type of operations and the conditions attached to these funding options