Following the pandemic, you may be rethinking your dreams of becoming an entrepreneur. However, now could be the perfect time to believe in your business. The current economic climate is fairly uncertain, so make sure to consider this when writing a business plan. Over the past two years, many businesses had to face turbulent times and lived to tell the tale. They adapted, using well-thought-out strategic plans. Although COVID-19 robbed us of many things, it has also opened a wealth of new resources which will enable you to start your new business today.
Before you look into funding options, work out how much money you will need to start up. Research what steps you will need to take to start your business. There is lots of information online to help you with this. There are several factors to this, as costs can vary dependent on the type of business you want to start. Some businesses may need very little money, whilst others may need a lot, before they can be founded. Do lots of research and make note of the costs you will incur. It’s a great idea to do the maths in advance, as it will put you in a better position in the future and when deciding on the right funding. Here are some things to think about:
- Registration costs
- Insurance and Legal (licences, certifications etc)
- Marketing /Advertising
- Supplier and stock
There is no one size fits all approach to funding a new business. You need to think about what is most suitable for you. By doing planning, you will know what your business needs.
Types of Funding
The easiest way to fund your new business is with your own money. If you have any savings, then this could be a great option. However, it’s not risk-free, as if your business fails, then you will lose a chunk of your savings. But, by investing your own money, you can test the waters with your new business and ensure it is a viable business venture. It means you can launch the business without owing anyone. If your small business is already established, then you may be able to secure larger amounts of funding in the future from loans and grants. This option will be limited by the amount of savings you have available, which could hold you back and may slow down the growth of your business. However, it can act as a stepping stone to launch your company. Don’t be tempted to sell vital assets to raise funds, know your limits, and only spend what you can afford. It is a good idea to move the amount you want to invest into a dedicated bank account, then there will be a clear boundary between your personal and business funds.
Loans are the most common way for businesses to get funding. You are likely to get money quickly and usually without a limit or cap on the amount, as long as you are viewed as low risk. To be a low risk, you need to prove you are someone who can afford the monthly repayments. As a new business, you may seem riskier than someone with an established business, but if you can provide them with a detailed business plan, they will be more likely to accept you. A clear financial forecast can go a long way when securing a loan. Of course, not all loans are the same and you need to work out which will work best for you. Research online so you can see the differences between the types of loans on offer. A good choice for a new business would be an unsecured business loan, as these are an excellent source of funding for a new company that lacks assets. Unsecured business loans offer your business flexible funding options and are ideal for those who cannot risk losing valuable equipment or property.
Grants are perfect for a new business, because they do not require repayment. However, there are advantages and disadvantages. A big advantage is that it’s a sum of ‘free money’ that is non-repayable. A major con is that they can be difficult to come by, in fact, they are actually very rare. Whether you can get a grant depends on your business and its needs. Often grants have certain criteria and your business will need to meet them. Some grants may only offer money for a particular purpose, such as buying equipment. Applying for grants can be very competitive and you will need a strong business plan and the ability to provide evidence of meeting each point of eligibility criteria. Applications can be very time-consuming, so be prepared for this. To find a business grant have a look online. Most grants are offered by the local authority, the government, or a local enterprise partnership. Look at the kind of funding they can award before you apply. Ensure they have the means to offer the amount you need. Have a look online to find lists of where you can apply. There are still some grants available for businesses, which are growing and recovering from the disruption of the pandemic.
Also known as bootstrapping, this can be a hard way to fund a business but can be successful if you are careful with your budget. In a nutshell, organic growth is when a business funds itself from its ongoing profits. However, you will need to be resourceful and have a good financial head with numbers. However, there are great benefits, as you retain complete control over the company and can stay true to your goals. Organic growth can fail if you run out of money, but many companies have been very successful. Apple and eBay both bootstrapped to the top. By funding your business this way, you are establishing viability, providing it has good cash flow and eligibility for further funding from other sources. This is a slow way to fund a business, but can be very dependable. If you can manage it, there will be huge rewards. Just make sure you remain passionate and stick to your business plan.
Crowdfunding is becoming an increasingly popular way to fund small business ventures. The idea is simple, as the ‘crowd’ or large group all contribute money to your fund, which then adds up to a large amount of money. Whilst raising funds, crowdfunding can promote your business and raise its profile. Online crowdfunding pages will enable you to reach people across the globe and be a very successful way to raise funds. Of course, people need a personal interest in your business, if they are to contribute, but the more people you reach, the more likely you will raise what you need. There are a few types of crowdfunding to consider, and with most of them, you will have to offer something in return. Equity crowdfunding is where you give an investor a share of the company in exchange for funds. Rewards-based crowdfunding is similar, but investors receive a reward, such as a gift, once the company is running successfully. Donation crowdfunding is the easiest, but doesn’t work for all businesses. It usually only works when businesses offer a service that helps their local communities and those in need. To find out more, check out our guide on Crowdfunding for Small Businesses.
Funding a business isn’t easy, but if you have a good business plan and as much knowledge as possible, then you should soon be an entrepreneur in no time.
We hope our guide proves useful and please make sure to check out the other articles on our Knowledge Hub for all the best tips and tricks in the world of business.
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