Raising finance for your business can be one of the most difficult challenges you will face as an entrepreneur. Being innovative and coming up with an exciting new product or service that will “change the world” is one thing but accessing funding to get it off the ground is a completely different ball game.
Debt VS Equity
There are four main channels you can pursue including bank finance, venture capital, crowd funding and government support. The first thing you need to ask yourself is if you want to pursue Debt or Equity finance? Debt being the more traditional approach, acquiring funds in the form of a bank loan with interest, or Equity finance often in the form of Venture Capital where you offer an investor an ownership stake in your business in return for required funding. There are pros and cons to both approaches, bank finance is often difficult to raise and works out expensive taking into account interest rates but allows you retain full ownership of your business and have more flexibility, whereas venture capital finance will require you to give away a share in your business but will often bring specialist knowledge, additional resources and leadership that can add great value.
One of the more recent crowd funding which is a form of venture capital investment where you raise funds from a number of “angel investors” through social platforms such as: www.investmentnetwork.co.za, www.kickstarter.com and www.indiegogo.com that allow you to sign up for free and upload your proposal to start raising funds. Crowd funding is becoming more and more popular especially for start-ups and business ventures that have a positive social impact. It is relatively easy to access funding through these channels as there are a number of registered funders on the lookout for new and exciting projects to invest in and investors are not required to carry all the risk themselves. In terms of government support there are a number of new and exciting Public Private Partnerships that are focused on making it easier for small businesses to access funding such as the Gauteng Funding Fair: www.gautengfundingfair.co.za which is sponsored by the Gauteng Provincial Government and Deloitte. The event will be held at Emperors Palace from 25-26 March 2014 and aims to initiate and facilitate face-to-face contact between project promoters, entrepreneurs, business development bodies, venture capital and private equity investors as well as debt funders.
Regardless of which route you choose there is a lot of preparation required to help increase your chances of accessing the funding you need. It’s all about reducing risk while increasing return for potential investors and positioning your application as an opportunity, not a desperate request for help. You need a detailed plan and financial projections including a budgeted income statement, balance sheet and cash flow statement providing clarity on the numbers. Investors want to know how much you need, how much they will make, how long it will take, what securities are in place and what control they will have in achieving the intended outcomes.
It will require a lot of research and planning that is often a daunting exercise but if given the right amount of time, energy and support it will be well worth it in the end. Start by updating or creating your business plan which can be done through free and affordable platforms such as www.stratpad.com or Business Plan Pro from www.paloalto.com. Remember it’s not just to impress your potential investors, it’s to ensure you can make it happen and that you have covered all your bases, the last thing you want to do is lose other people’s money. After preparing your business plan you will need to complete the relevant application documents depending on your preferred funding option. The required documents often include: relevant business statutory information such as registration, tax clearance and BEE certificates as well as additional information on your company’s background, products and services, target market, expertise, skills and experience as well as customer and supplier references. The more relevant information you can provide the better chance you will have of succeeding in your funding application. Sometimes you might not need to raise finance and can do it yourself, organically, by lowering your overheads and putting systems in place to collect payments from your customers as fast as possible while paying your suppliers as late as possible to increase your cash flow, allowing you to operate more strategically and build up required funds.
Get Advice and Support
Talk to experts and get as much advise and support as you can. UBUNTU Business Consulting offers affordable Management Consulting, Business Training and New Venture Creation services to Entrepreneurs, Small to Medium Sized Enterprise’s (SME’s) and Corporates. Our services are focused around assisting clients to: Start a New Business, Grow Their Existing Business, Franchise Their Business and Sell Their Business. All our services are tailored to meet our client’s needs, from short term Project Management to large scale Strategic Interventions! For more information visit www.ubuntubusinessconsulting.co.za or call +21 (11) 056 8071 or +27 (82) 902 0110.