We will cut to the chase. While some successful businesses started off self-funded, the majority of entrepreneurs would attest to the fact that garnering healthy interest from investors and lenders through research, and a keen investment of time, is the best way to get a fledgling business off the ground.
New businesses are infamous for eating through money like termites. Beyond the costs of that initial start-up, you’ve got to have a sound plan in place for managing the day-to-day operational costs of running a business (and drawing your own income from the business) before it starts to turn a profit. Understandably, most of us are not prepared to rely on our own cash reserves for that – or saddle ourselves with the risk.
To that end, here are a number of steps to consider as you prepare to reach out to investors and lenders and secure investment for your start-up.
You’ll need a budget
It can feel almost impossible to put together a well-informed, workable budget for a business that is not yet operating, but doing so is very important. It shows investors that you have a plan for those initial weeks and months, and that you are fully cognisant of the level of financial responsibility you are about to take on.
Consider operating expenses – the cost of acquiring raw supplies or product, of hiring employees or maintaining a commercial space and marketing your business – as well as elements that are easily overlooked like utilities, permits, and office supplies.
You’ll need a realistic number for lenders
It can be tempting to give lenders the most attractive number you can – a number that is catering to the low-end of what you anticipate you will need, so you don’t come across as overblown or greedy. At the end of the day, however, the only thing this is going to harm is your business, and your ability to get it off the ground.
Most start-ups spend more than they make during the first two to three years and, even after you break even, you may need a considerable financial boost.
Ensure you always have a contingency fund
Even with the strongest business plan in the world, you cannot guarantee that your business won’t run into unexpected expenses or setbacks. Having only enough money to see you through the best-case scenario is a recipe for disaster.
Just as we all need a rainy-day fund for our personal lives, so too does a new business need a contingency fund to see it through those rough patches.
Make sure all financing is working to the same timeline
If you are borrowing from multiple lenders and investors, it is very important that you coordinate each stream so that your funding comes in at roughly the same time. Start-ups need a big injection of cash. If your funding comes in sporadically, then you may well run into periods of reduced cash flow and suffer as a result.
Work with a corporate solicitor to secure all licences and permits
Start-up owners need to ensure that they are always working within the correct legal framework. Investing money into ensuring that you are compliant is far more beneficial than being saddled with the steep fines that come from a lack of compliance – and, besides, securing a strong corporate solicitor now means having someone by your side to help you grow, develop, and evolve over the years to come.
Corporate solicitors can also help you to save money in the future, and make your business as tax efficient as possible. Don’t skip this step.