Author: Paul Michael / Source: Wise Bread
Perhaps one of the most exciting career moves anyone can make is to start a business. However, that rush of excitement and adrenaline often comes with apprehension, intimidation, and fear of failure. How are you going to get the money you need to make a go of this?
It’s estimated that 50 percent of businesses fail within the first five years of operation. And while a lot of that has to do with lack of focus, motivation, and commitment, money is also an issue.
Once you’ve legally incorporated your business, here are some basics that will help you raise funds for your new company. Note that while angel investors, incubators, and venture capital companies are most often associated with Silicon Valley, some also work with non-tech companies.
1. Raise money in stages
You are not going to get all the money you need to operate your business in the first round. What you will do is go through different stages of funding, building up to greater amounts of money as the business becomes successful. Think of it like weightlifting. You would never go into the gym and start with the heavy rack; you work up gradually, making progress and using those gains to lift larger amounts.
The first stage will be a small amount of money you can raise through your own network. Then, you will move on to other sources of funding. In the venture capital world, funding for successful businesses usually continues through a series of investment rounds — A, B, C, D, and so on.
(See also: 4 Ways to Fund Your New Business Without Borrowing a Dime)2. Figure out exactly what you need to get started
What will it take to get your venture off the ground? This can’t be some arbitrary figure plucked out of the air. It should be based on operating costs (including paying yourself a salary) for at least six months. Some expenses will be one-offs, such as purchasing manufacturing equipment, and others will be recurring. That all needs to be added into the mix. Don’t forget utility bills, employee pay, and costs that can vary from month-to-month.
Consider how you will grow over that six-month period. You may need to buy a lot more inventory or supplies in month six than in month one, especially as demand booms. You don’t want to be in a situation where you cannot fulfill orders or give customers what they want. Disgruntled customers will quickly move to another business.
3. Start with friends and family
It’s unlikely that you’re going to be able to completely fund your new business with money from friends or family. However, some new businesses have done this (it’s known as bootstrapping), and it will all depend on the size and scope of your business, and just how wealthy your inner circle is.
Starting here is the best way to take your first tentative steps into acquiring the seed money you need, because these people know you, trust you, and want to see you do well. Of course, people also say that you should never mix business with pleasure, and it’s true that doing so can cause problems.
If you decide to go this route, make it all official. Hire a lawyer to draw up the paperwork and the terms of the loan. You may give away shares in your business in exchange for the cash, or promise a return on the investment. Do not simply shake on it.
Also, be aware that money borrowed…
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