Many small businesses wish that they had enough funds to help grow their business. It is important to know how to raise money not only at the start of a new business but also as a business grows. What difference would it make to your business today if you had more working capital? Let’s look at four ways to raise money:
1. “Bootstrapping”: Raising cash through profits is the least expensive way to get working capital. Unfortunately, it is also the slowest. Selling your product/service and making enough of a profit to cover needed reserves and then have enough left over to expand a business takes a lot of time. There may be some businesses that are using this system, but in this rapidly changing environment, slow may also mean a loss of opportunity.
2. Creation of Debt: Many small business owners borrow money from a variety of sources. Credit cards are an easy source of initial funds and perhaps the money needed to buy a computer or other costly piece equipment. Credit card interest rates are usually higher than other possible sources. Alternatives to credit cards include banks, savings and loans, investment banks and a lending platform.
3. Selling part of your ownership: Having to share part of your dream and future profits may not be desirable, but it may be the best way to make your dream a reality. Some investment sources bring expertise along with their investment dollars which will help grow a business. A few possible investment sources include: Venture capital, Private equity and Angel investors.
4. Getting donations: The internet has made it possible to ask other people to donate funds. There are several donor-based crowdfunding platforms that can help; they include Kickstarter, Indiegogo, Crowdfunder, and RocketHub. Platforms for charitable causes include GoFundMe and GiveForward. Yes, there is a fee, a % of the funds raised. Some funds are straight gifts with no strings attached, or you can offer something in return, i.e. discount on future products.
Another way of getting initial funding is from family and friends. This usually requires a payback and a return on their investment. This funding source may be easier to convince and can serve as the initial capitalization while the business proves itself. This may be followed by a fund raising source as outlined in #3.
Don’t let a good idea get lost because you don’t have the funds needed to bring it to fruition. Where there is a will, there is a way.
Tips & Advice by Nick Petra, CFP – Founder of Strategic Duck and BizQuack
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