Managing your business is not an easy job, and that’s what stats tell us. Approximately 96% of the businesses end their operations within the first ten years of their lives. Why are owners forced to make such a choice? What about their American dream?
Before you understand why so many start-ups fail, let’s find out the reason why only a few are successful. Businesses that thrive are willing to take calculated risks. Managing start-ups is difficult due to the lack of capital available and the cut-throat competition in the business world. There are several methods you can use, which may result in your start-up to survive its initial years and go on to become a successful corporation.
Nowadays, many business owners are building an analytics team that advises them on how to raise capital for their business and achieve growth. The tricky part, however, is securing the finances.
Here are some steps that may help you successfully secure the financing for your start-up, so it thrives beyond those initial years.
Make A Detailed Business Plan
When starting your business, you should have a clear idea of its operations. Failing to understand that will always lead to failure and losses. Therefore, you must have a business plan at hand so that your start-up has a budget to get access to funds, in case you’re facing a shortage of cash.
It’s often noted that firms that have business plans formulated in their strategy experience high growth rates. This can be depicted in the picture below. There are several reasons to back this claim. Investors need to see your financial projections before they are willing to lend you a penny. It will be difficult for you to attract investors if you do not have a business plan, as it will give an unprofessional impression of your start-up from the first days of operation.
Your business plan provides a roadmap to proceed with your business. Based on a financial plan, you can look for opportunities to invest in the future and enhance your decision-making.
Look for Financing Options
The next thing you can do is to visit local banks for your financial needs. It is recommended to approach them first since you already have a relationship with them, and they would be more willing to give you a loan. You must secure an appointment with your loan officer and bring your business plan with you. The loan officer depending on your situation may judge your credibility when qualifying for the loan. This is based on your credit score, financial statements of the previous years, etc.
If the bank doesn’t approve your application, there are alternate sources for financing. There are many small business loans, short-term loans which can be approved up to 5000 loan with bad credit for start-ups, or crowdfunding techniques to raise capital for business operations.
Get Help from Friends and Family
According to various studies, friends and family are second in the list for sources of financing start-ups. Do not be shy when approaching them to get a loan because they are the people who love and trust you and will be willing to lend you money without interest.
In finance terms, this is known as patient capital — you can approach your siblings, grandparents, and even your rich uncle to receive funds. It is worth noting that there are several risks involved in this.
You would not want to make a bad investment and lose all the money. This would lead you to an uncomfortable situation with relatives. The chart below depicts that friends and family financed more than 5% of the businesses.
Find Venture Capitalists (VCs)
There is always the option of securing funds from venture capitalists at the cost of giving them a portion of your business as equity. It is not always a bad thing to let go of some power to exercise the decision-making of your business. Some of the most successful firms today, have given away their control to shareholders, which has enabled them to grow exponentially. The VCs may also have links to established entrepreneurs, which might help you to get access to even more capital. Also read: Which Social Network Is Most Important for Your Startup?
You must understand that VCs want their money back as soon as possible. They do not plan to give you a long-term loan, so your business must have a good chance of succeeding in the first place, plus pay them some of the revenue as dividends. The possibility of you securing capital from VCs depends on the industry.
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Launch A Crowd-Funding Campaign
Whether you believe it or not, there are examples of businesses being successful due to various crowdfunding campaigns. Crowdfunding gives you access to like-minded people you would not usually be able to engage with.
Your business ideas and products must have an appeal so that they would be willing to fund your plans and make them a reality. You can specify the concept related to your business and why you need funds for it. Websites such as Indiegogo and Kickstarter may turn your business highly successful if you can carefully pitch your ideas to the general public.
Search for an Angel Investor
Angel Investors, by definition, are individuals with a net worth exceeding $1 million. They usually operate alone but can team up with other individuals and form a fund. They can be a good source of securing finance for your start-up. You must have a good business plan which you can consult with them, based on your financial position and your plans for future growth. Networking plays an important role here — entrepreneurs are paired with different angel groups, after which they conduct discussions and presentations. Only when the companies can secure capital.
The Final Verdict
The bottom line is to secure the capital necessary for your business. If you are dedicated enough and work hard, you will eventually find a source that can fund your capital needs and allow your business to grow without much difficulty. You can also try other techniques to secure capital, which would help you to fulfill your ambitions if you can sell your pitch and professionally present your ideas.