Why funding is important to Start-Up business?
Obtaining funding in any economic climate could be challenging, and during the life of almost any business “especially in early stages” the owner will need to seek out the cash to help with its growth. There are plenty of the options out there for getting your business off the ground, it is just a question of picking the right method for your venture.
Simply put a start up costs are non-recurring costs involved in setting up your business.
Examples Of Start Up Costs
- Business Registration
- Website Development and Hosting
- Editorial and E-commerce Photography
- IT Hardware
- Office Supplies
- Storage Space “if needed”
How to collect funds for business?
Having a realistic idea of your start up costs is an essential part of the business planning, and reduces chance of running out of the funding before your business has launched. The most common way for start-ups to fail is by not having the enough capital to see them through initial stages.
There are four most common ways to get you fund for your business
4 Ways To Fund Your Business
- Angel Investment
- Start-Up Loans (Not Recommended)
- Self Funding
Crowd-funding is a way for the businesses to raise funds by asking a large number of people for relatively small amounts of money. Websites like Kickstarter & Indigogo have provided platforms for ‘backers’ to peruse projects where they can usually purchase goods pre release for a favorable price. Backers are rewarded with an exclusive item or offer which they are essentially purchasing in advance of production. Because there are ‘rewards’ involved in crowd-funding, those who back a project will not be owned any shares in the company.
Crowd-funding can be a fast way to raise the money with no upfront fees. Successfully crowd-funded projects can get the huge amounts of online media attention, which can help them grow way beyond what money raised alone could have done. However, it is not without the drawbacks. Failed projects risk damage to the reputation of business and people who have pledged money to them.
An angel investor “also known as a private investor” is an individual who provides capital for a business start up in the exchange for ownership equity.
Angel investment offers the low risks with potentially high rewards for any business owner, however, there are both pros and cons to consider. The most obvious positive is, you are not risking your own money, and that having invested financially in your brand. your investor will be keen to help you get to the market. Another advantage is that if business did fail, you will not have to pay any money back as your investor will have taken on all of financial risk.
Angel investors usually come from the business background, and with that comes valuable knowledge and contacts. Sometimes this alone could be more beneficial to any business owner than the money invested. First however, you will have to convince them to hand over their hard earned cash, and you will also have to give up a percentage of your business, with this figure usually being high. The share of your business is how investor will justify giving you cash up front for your idea.
One disadvantage to Angel investment is, your investor will be constantly looking over your shoulder and will perhaps try to pressure you in to doing things which help them to regain their investment rather than push your brand in direction you would like. It is important to consider your investor a partner rather than just a financial entity of business and to consult on decisions together.
Start-Up Loans (Not Recommended)
The Start Up Loan scheme is a government backed initiative helping individuals to start or grow a business in the Region. Although you will have to take out loan and pay it back within an agreed time frame, the interest rates and payment terms are designed to give you pressure as possible, if the business fails you will still have to pay loan back.
To avoid giving up the portion of their business or tying themselves in to a loan agreement, many entrepreneurs fund their businesses themselves using savings or personal debt such as credit cards or overdrafts. Alternatively, people can sell assets or mortgage properties to generate the money if possible. Self-funding your business means you have complete control over your journey and you do not have investors looking over your shoulder asking for the specific returns or pressuring you into decisions you might not want to make.
One advantage of using your own money to start your business is that you will be naturally more cautious about what you spend on. You will find yourself doing much more due diligence before making any decisions.
Funding from family and friends is an effective way to round up some initial capital for any business. Those closest to you are more likely than anyone to believe not only in your vision, but your ability to make that vision into a reality. Unfortunately however, businesses fail which could leave a bitter taste in the mouth of any investor. If that investor is a friend of family member make sure they know true risks before the take the plunge so as to avoid ruined unpleasant family gatherings or friendships.
Edited: Sourced By @Howthorninc