Golden Rules Of Funding A Business Idea

You’ll be surprised at how many people have amazing business ideas that don’t ever get the chance to take off. More often than not, they run into the same stumbling block; money. Every business requires funding for it to get off the ground and start running. But, it’s common to make mistakes during the funding process, which either result in the entrepreneur failing to raise the money they need or ending up in too much debt.
With that in mind, today’s post will be all about funding a business idea. However, you’re not going to be presented with a list of ways to finance your startup (though this will be touched upon). Instead, you can read through some of the golden rules that’ll help you find the funds you need without damaging your startup before it’s even up and running.
Use A Combination Of Options
This is something that a lot of people get wrong from the word go. They put all their eggs in one basket, so to speak, and depend on just one funding option. There are cases where this works, but it’s rare to get all of your money from one source and not experience issues. Plus, it will probably take longer to get the funds you need, and you may fall short and just accept less money than you require.
Instead, you need to explore all the different ways of raising money for your business. This includes things like loans, investors, crowdfunding, your personal finances, and so on. With a combination of methods, it helps to relieve a lot of stress on your shoulders. For example, you use some of your money, get a small loan, and crowdfund. This can help you raise the funds you need without needing to take out a huge loan or wait for years for your crowdfunding source to reach the target you need. Plus, you don’t use up all of your personal finances, landing you in debt.
At the end of the day, no definitive funding option is ‘the best.’ They all have pros and cons, and using a combination of methods can help negate some disadvantages with advantages from other methods. So, make sure you explore all the different options and choose ones that will work best for you.
Borrow With Care
As mentioned above, borrowing money is a viable option when looking to fund your idea. However, this is where a lot of entrepreneurs make common errors and bite off more than they can chew. It’s crucial that you borrow with care and don’t take on colossal business loans that put a lot of pressure on your ability to make profits.
If possible, look for smaller loans that you can use as a supplement alongside other sources of funding. Personal loans can be a good idea as they’re not too dramatic and can usually be paid off quite easily and quickly. You can even get bad credit personal loans with a guarantor, which will help any entrepreneurs with lousy credit scores who are struggling to find conventional business loans. It’s often a smart move to use a loan to fund one or two specific aspects of your business. For example, you get a loan to cover the cost of building a website and find alternative funding sources elsewhere.
The purpose is to avoid relying on loans as your sole source of startup financing. This will inevitably land you in a lot of debt, with pressure to pay it off while your business is going through the slow startup phase. You can borrow money, just make sure you’re careful when you do it.
Don’t Hand Over Too Much Of Your Business
You will come across various finance options where individuals are willing to invest in your company for a slice of the pie. These tend to be venture capitalists or angel investors who give you the money you need but will hold a share of your business. Venture capitalists, in particular, are keen to make money from your company. When you make profits, they get some of them depending on the terms laid out when they gave you an injection of cash.
Now, it’s sometimes very helpful when you get money from private sources like this. They’re wealthy individuals with a lot of business experience, so it’s beneficial to go into a partnership with them. But, the key is that you don’t hand over too much of your business. A lot of investors take advantage of new entrepreneurs who are desperate to get their company up and running. So, they offer you the cash you need, but demand a ridiculous slice of your profits. As a result, it just means that most of the money you make will end up going to them instead of you.
Don’t be afraid to use investors alongside your other funding options, just make sure they aren’t asking for too much in return as this can damage your company.
Create A Complete Budget Plan
Before you start looking for money, make sure you have a clear idea of where it will go. There are so many different areas of a company that requires investment to get it out of the blocks. Think about things like your marketing budget, raw materials budget, and so on. You need to assess your idea and work out where all the money needs to go.
As a result, you’ve got more clarity on how much money you need to raise, and you can explore all the different options to cover certain things. Plus, it looks better when you’re going to other people for money. Regardless of if it’s for a loan, investment, or crowdfunding – people like to know exactly what their money is being used for.
To sum up; funding a small business idea is never going to be easy. It’ll probably take a long time, unless you get lucky and a crowdfunding campaign goes viral. No matter what your idea entails, make sure you follow these golden rules of funding it.