Starting or growing a business can be difficult – and that difficulty is cranked right up if you’re doing it without any money in the bank.
Don’t get me wrong; it’s absolutely possible to grow a business if you’ve only got $20 to your name – but I’d argue that, for most people, it’s not the healthiest way to start.
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The trouble with bootstrapping
Sure, a rags to riches story is a great story to tell when you’re successful – but when you think about the actual day-to-day existence those first months or years will inspire, it’s easy to see a few big hurdles.
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The first of those hurdles is, quite simply; life. Have you got rent or a mortgage to pay? Groceries to buy? Gas to put in your car? Those things almost always have to come before you get spend a single cent on developing or advertising your business. When you end up with a few spare dollars to put into pushing your business forward, it can be horrifically demoralizing if you don’t see an immediate result.
Of course, there are places us freelancers can find work without a big investment – but, when there’s a lot riding on winning the business, there’s a temptation to discount your product or service – or appear desperate when you’re in front of a client. Neither of these are solid foundations for a business you’re happy with. So how do you get funding?
Unless your freelancing career has seen you single-handedly harness fusion energy or develop computer consciousness – you probably won’t have a huge line of investors knocking at your door. If, like millions of other people, you’re coming at business from a freelancing basis, the reason is usually simple:
You don’t look like a business.
That’s not to say that you don’t have some great ideas, skills, services or products – it’s just that it’s not formalized. In short; you’ll struggle to find investment from anyone without a business plan.
Creating a business plan
Don’t panic. I’m not suggesting you sit down for weeks and craft a 100-page business plan.
Instead, just start giving your thoughts some structure. You don’t have to be an expert writer or mathematician either, for now, just think about where you’d like your business to be – and the hourly, daily or weekly steps you’ll need to take to get there.
- What kind of ‘need’ are you fulfilling in the marketplace?
- Who is your target audience?
- How do you turn the opportunity into a business?
- How will you market and sell what you offer?
- What kind of goals will you set and how will you hit them?
- Do you need other people involved in your business? If so, who?
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Whether you’re asking a friend for investment – or a formal investor or business loan provider, these are things you’re going to need to plan; without them, you’re simply someone who’s got a few good ideas – and good ideas alone aren’t an attractive prospect.
Different kinds of investment opportunity
Find out how to get funding for your startup business. There are a lot of ways to raise capital in 2020!
There’s no single right way to find investment for your business idea – but, the good news is, there are plenty of options. These are some of the investment opportunities you might want to explore:
Through the bank
Although it’s not as 21st century as crowdfunding – approaching your bank for a business loan or arranged overdraft is still one of the most reliable ways to bring some money into your business.
The business advisor you meet with is going to want to see some robust plans with realistic financial projections – and, depending on the business you’re pitching and the size of the loan, they’re likely to need to do some credit checks too. If you can jump through the hoops the bank will require, you’re likely to get the money reasonably quickly.
Crowdfunding is growing in popularity all the time – having generated around £25bn for startups last year alone. In essence, your overall financial injection will be made up of hundreds (or even thousands) of small investments made by individuals.
These small investments will secure investors a product or service from you when your target is met – this is the return on the small investment made. You’ll set the investment incentives and they can vary according to the amount put in.
Crowdfunding is nowhere near is formal as borrowing from the bank or getting an angel investor on board – and normally, assurances are put in place by the platform or website that’s being used.
An ‘angel’ investor is someone who professionally invests in businesses – not dissimilar to the ‘sharks’ on ABC’s Shark Tank.
The process for getting in front of an angel investor doesn’t have to involve TV cameras and a tough showdown – in fact, there are business networks created solely with the purpose of connecting hopefully company owners with angel investors.
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Like pitching to a bank, you’ll be expected to have done your homework here – with a business plan and financial projections laid bare. You’re also likely to need to talk in depth about yourself – as you and your attitude will form a large part of the investment.
Grants and incentives
Although they differ significantly state to state (and country to country) – there are often incentives and grants available for people who are looking to start up in business.
Proving that you’re eligible for a grant can sometimes be an extremely long and drawn out process (usually because it’s state or charity money that being used) – but, if you are eligible, you often won’t have to pay the money back – or will be able to do so at a significantly reduced rate.
Friends and family
There’s an old phrase about not mixing business and pleasure – but, with around 60% of small businesses having received some financial input from family in their first 2 years of trading, it’s definitely a route that a lot of people choose to take.
To make sure relationships aren’t strained, it’s important that borrowing from family is done the same or similar assurances you’d extend to the bank or an angel investor. While people you know personally are far more likely to lend based on trust – rather than credit rating – relationships can be tested if misunderstandings develop over time.
Finding the right investment
If you’ve got a good idea – and a fairly well-packaged plan of how you’ll achieve success, you might find that getting investment isn’t as tricky as you think.
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Should you find yourself in the enviable position of having multiple investors interested in what you’re going to do, then you might need to start thinking about which is the right one for you.
- Will this be a financial only investment? Or will the person be bringing business experience to the table?
- What kind of experience does this person/company have in your field?
- Has this investor supported people who are in a similar position to you?
- How ‘hands-on’ will the person be with the business? Or are they simply looking for a monetary return?
- How do this investor’s terms compare to others?
The answers to these questions will depend on a host of things – not least the type of investment you seek. Bank loans tend not to come with a huge amount of business advice attached (although some banks have small business advisors) – whereas some angel investors will offer to be involved with the business heavily.
The type of investment you need is likely to be as unique as the business you’re launching – so, now’s an important time to think about what you’d like to get from an investor, what they’ll get in return – and where you’d like to see your company go…
Did you raise money for your business recently? Leave a comment below to share how you got funded so others can learn from your experience!