New businesses always find that they need to raise funds at some point if they want to run smooth and sustainable operations. This aspect comes with a conundrum though: in a world of increasing bureaucracy, how does one successfully raise the necessary funds? Below is a list of four ways to raise capital for a growing business.
1. Selling stock
An interesting article on the Allbusiness website suggests that, ‘selling stock in a private placement is a useful way of procuring cash from suitable investors, while maintaining control over who becomes a shareholder in the company.’ This helps attract investors who are able to inject capital into the business, to further it and help achieve desired objectives.
To successfully execute this strategy, the business must show potential for growth and long term viability. Therefore, having a professionally researched and well-prepared business plan, realistic financial projections and an accompanying marketing plan on hand, will serve well in terms of substantiating business potential to investors and encouraging their confidence.
Forbes propagates the use of crowdfunding as another helpful way of raising funds for a business. Many websites, such as Kickstarter and Indiegogo, help various upcoming enterprises go further. This is a great idea for people who fail to qualify for loans at banks, due to one or other reason. Forbes further emphasises researching and selecting a reputable company that has a proven record of success. One must also be aware of all the terms and conditions that are binding with these companies and any arrangement.
3. Business angel
Wikipedia defines a business angel as such: ‘An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.’
This is a new trend in South Africa, but it is quickly growing into a noticeable phenomenon. The Angel Investment Network website is for instance one popular location where upcoming entrepreneurs can join online and receive assistance from angel investors. They will assist with the facilitation, but it is also advisable to conduct personal research into exactly how this works, and to take careful note of respective terms and conditions.
Loans remain the most common means of raising funding for a business. However, there has been an obvious movement away from strictly traditional or institutional avenues, to personal loans from family members, relatives or acquaintances. Forbes recommends treating family and friends professionally in such situations, because they are in fact business investors. This will bode well, not only for the long term benefit of the business, but so that important relationships can also remain intact. Hence, presenting a proper business pitch with a clear business plan and financial projections will be an excellent note to start on. It certainly helps if family members are genuinely convinced of the success of the venture and the repayment of their loans.
If you are struggling with cashflow challenges or require seed capital to start-up or move to the next phase, then consider these four channels as a starting point for your next move.
Proudly brought to you by the National Small Business Chamber (NSBC).