Research shows that funding is one of the major impediments to small start-up businesses. The lesson about funding your business is the crux of this week 9, I will outline four main sources of funding and discuss them. These four main sources of funding include funds from:
- generating revenue with your talent or skills from your customers,
- Family, friends and your personal saving,
- Private funding organizations
-loans, grants, and aid, and
Generating revenue with your talent or skills from your customers is an entrepreneurial approach to build revenue. This is much recommended because it entails growing your business from the cradle and learning the ropes along the line. It is devoid of plenty of business risks. However, it could take a long time. This sort of approach widely manifest in people that have skills like fashion designing, auto-repairs, masonry and in this information age, software development skill and other IT skills is a way to raise fund for your business directly from your customer.
Another lofty benefit of this approach is that it enables the entrepreneur to learn the important art of customer management because you would be dealing with the client directly and build a client base.
To raise funds through family, friends, and personal saving is an African way to raise money because Africans are communal by culture. This approach works better when you have a good reputation capital with people around you. In many cases, these funds are raised for entrepreneurs based on emotional bases and not really logical bases.
Private funding is a common way to raise funds in an organized setting where every cent from private investment companies must be highly analyzed for profitability. In some cases, these investment companies invest with other people’s money, so they need to be convinced about the return on investment or the potential strength of the business to scale and grow. Private funders often want to have a stake in the business. Striving businesses and innovative start-ups often catch the eyes of investors.
Loans, grants, and aid are a good way to raise funds. For loans, my personal principle is that “never acquire loans for a start-up business. Loans can be acquired for an existing burgeoning business.” Businesses that are legally and financially structured easily get loans if their numbers and book are in order.
Grants and aid are also good. Grants and aid give less pressure on the entrepreneur to pay back because it is not refundable but scarce.
Partnership is another way to infuse funds and resources into your business. You can engage with people who are interested to commit their resources for your business for a reward.
Finally, almost all these forms of raising funds for your business are different forms of partnership. As a lawyer, I always advise business people that a principle they should never forget about the partnership is, “always ensure you have all terms and conditions for the funds or resources that would come in in writing and well document with the partner for future references. Get a good corporate lawyer on this sort of job.
Please share your opinion on ways to raise funds for businesses.