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How To Finance Your Business

Aug 23, 2008
If you are looking for capital from outside sources, it's not enough to show you are passionate about the idea - you must have a business plan and the prospect of a good return for your investors. You do lose some control by inviting others in to finance your business, but often there would be no business without their help; investor may bring useful skills along with their money.

When you have a great idea for a business, it is often quite difficult to understand why everyone is very happy to talk to you about it until you mention that it needs some funding. Suddenly there is an awkward silence and people make their excuses and leave,

The best possible scenario is that you are launching the business with your own capital that you have just lying around in a deposit account, but the chances of this are very slim. You may have to sell assets to raise cash, or you may have to borrow or seek outside investors.

It is important to exhaust your own means of raising cash before asking for any more from anyone else. Every penny counts because the more you borrow from others the more you will have to pay back, and the more control over your business you will lose. If you can reduce that amount by even a small sum, it will help.

Do not sell yourself short and pretend that if you sell the car to raise money, you can always buy another one once the company gets started. This won't happen and you will be without a car for a long, long time. Only sell assets that you can really do without. Look to raise money by selling off unused items you own, such as old CDs, DVDs or furniture. Many of us own a lot of extra stuff that we do not use that is sitting in boxes in our own or, even worse, other people's houses. Make these items work for you and sell them. There are the traditional routes such as car-boot and garage sales, but with the glut of online auction houses and Amazon's marketplace program, you can start selling very easily.

No matter how generous your friends and family are, they will all think very hard and long before deciding to become involved. It really isn't distrust of your ability to set up a business and make it happen, or revenge for all the times you left your friends to pay the bar bill. There is something inherent within us all that makes us wary of investing in start-ups. The statistics back this up; a staggering number of start-up ventures fail.

If they are happy to invest, you must provide them with the same information that a professional lender such as a bank would require: a business plan and some financial projections. In your own mind, treat them as a lender and set up a realistic payment plan through direct debit, so both parties know how the relationship will work out. Again, if your lender is looking to recoup their capital and receive a return on profits, it is in everyone's interests if a solicitor formulates this relationship professionally - a gentleman's agreement really isn't enough if things go a bit sour.

Banks are a safe way to borrow money. Although their interest rates are very high, everyone knows where they stand. The bank will insist on forms being signed and, if the loan is taken out by the company, they will ask for some security (depending on the amount), which could be your home or other assets. They may also require that the directors agree to take on loan repayments should the company fail. By going through a bank, you will be asked to provide the all-important business plan and financial statements which will have been completed prior to the money being paid over - so at least you will have a clear plan that you can start implementing the moment the cash comes through.
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Max helps people to understand why franchise businesses fail . He shows them how to look for best Franchise Opportunities .
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