Business Finance Startup

How To Fund Your Startup: Microbusiness Funding Ideas

Business owner sign contract
Written by MicroStartups

When you’re starting out on a new business venture, it doesn’t matter how experienced you are, how fantastic your idea is, creating a business is an exciting process, but one with huge amounts of hard work. The potential benefits are huge, but getting your business going and having it succeed is not easy and requires a healthy amount of funding, spent in the right way. So, what can you do to increase these chances?

Planning and then planning more is essential, cash is king and if you don’t have a healthy flow of it throughout the business, it will only end in trouble. Cash is the lifeblood of any business, ensuring that you plan and save, can potentially keep you out of trouble. When it comes to funding and aiding cash flow, there are some effective tasks which you can put into place to ease things along.

Whether you’re starting a new business or are already running one, having a reliable trustworthy accountant can be hugely beneficial for the business. They can offer advice on what sort of organisation your business needs to be (a sole trader, partnership or limited company) and provide good advice about taxation. Accountants can also relieve some of the workload on a business especially if you are a relatively new entity. Your accountant can also do all the necessary book keeping for certain records and tell you the correct places where your company needs to be registered. This can allow business owners to focus on their usual job and day to day running of the business.

So how can I get funds?

Fund yourself – friends, family, savings

Arguably the most common form of finding cash for a new business is self-funding. Whether it is through your own personal savings account, selling personal assets or asking for help from friends and family, this cash can put together a new business. Borrowing money from friends and family, does represent a trustworthy reliably source of funding, which you have a positive relationship with.
Unfortunately, businesses do go wrong and when an owner has borrowed money from family and friends the loss of capital can be devastating, especially when they have been relying on you financially for results. If you decide to involve friends and family, it’s massively important to make them aware of the potential risks and losses.

Bank loans

Banks have always maintained that they are still willing to lend money to the right businesses. But the criteria for securing a loan has tightened up. If you have a viable business plan, with a solid idea and lots of potential then there’s no reason you shouldn’t be able to get a loan. However, your plan has to be able to who why it can succeed and why it’s a risk worth taking for the bank. Banks want to see that their loan is secured, and they are likely to get it back.

If you’re business is struggling a bank loan might seem like a great option when it comes to boosting cash flow. But banks are unlikely to take on a risk such as this, unless you can prove that the model works.

If you are unfamiliar with the process, applying for a bank loan can be a stressful procedure. It requires a lot of admin work and planning. If your business is experiencing difficulties during this time it can make the application even more stressful. Most banks usually require two years’ worth of company accounts. If you are a new start up and unable to supply these accounts, banks will normally require security against your assets.

Angel investor

These are usually business entrepreneurs, willing to take risks and invest money into new businesses. Angel investors have more recently begun forming groups, so they can spread the risks of their investments as well as to gather more resources and research. Most angel investors need a lot of persuading and the hard part sometimes can just be getting sat down in front of them. There can also be more pressure through this form of investment than others. Angel investors are always looking to see where they can get their money back, they are always looking for a get out if things go wrong. This form of investments also means that as a business owner, you would have to give up part of your company. Sacrificing any part of a business is always difficult and although you can gain a significant investment, in the long run you could end up losing more.

Partnerships

Having a partner can not only be a brilliant source of funding for a business, it can also be hugely helpful with the running of the business. A partner can aid you with planning, budgeting accounting and the day to day aspects of the business, however, sometimes it can be hard for new owners to relinquish control. Partnerships can be hard to maintain though, as the initial business owner, compromising on your own ideas can be difficult and can lead you down a different path, which you believe might not be right for the business. Strategic partners can help aid your business by passing on eventual work. If they are in the same sector and run a mutually beneficial business, you can make recommendations for one another and effectively feed each other business.

Invoice Financing

For B2B businesses invoice financing is a fantastic option, but unfortunately not enough businesses know about it, or know that it can be available to new start-ups. Invoice financing effectively allows you to raise finance based on the value of your invoices. If your funds are low, but you have lots of unpaid invoices that your waiting on, a factoring company can advance a percentage of the invoices. This can give you those extra funds which you might need to boost your cash flow further.

During the process of factoring, the factoring company effectively manages your ledger and collects your outstanding invoices for you. They will take their fees, before returning you any residual balance. One of the biggest benefits of factoring, is not only the additional funds that come your way, but also the time it can give business owners. Instead of collecting invoices from late paying clients, you can focus on other aspects of the business.

About the author

MicroStartups

A team of writers and marketers, MicroStartups was founded to inspire the entrepreneurial and business community to give back. We believe in business growth through giving and supporting the local community.

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