Depending on the size and level of your business, funding is always an issue for most of us. I am not here to tell to worship money and make it your master, God forbids, but what I am trying to say is that money is essential to obtain, maintain, and build things in many aspects of our lives. Even though not everything can be purchased by money; there are things that you can only obtain by God’s grace in your life. For example; love or a good name, and etc. I mean such things, money alone cannot buy, but it is by His grace, God can make it happen for you.
Starting a business or maintaining it requires capital. Your business may not require much capital as my business, depending on its nature, but at some point we will need money to keep them running, growing, and thriving. Some people work two jobs on top of their side businesses so that they can find extra money to finance their businesses. Some occasionally conduct yard or garage sales and sell their unused or cluttered belongings to fund their businesses. Others ask family members or friends for loans instead of the bank to finance their businesses. A few use money they have saved or their investments from other places to fund their own businesses. There are some, all they need is to offer their services and money will come; basically their businesses need no capital to start their businesses and have low barriers to entry. You can also participate in various contests to win money and prizes that can help you fund your business. All of these are just a few examples of what is call bootstrap financing.
So let’s find out a few methods and sources you can use to finance your business with or without capital in advance. According to my research, these are the most common and standardize ones, even though you can also find and apply other more creative ways such as mentioned above to obtain funds and financing your own businesses.
Bootstrap financing is building a business with little or no capital. The entrepreneur uses imagination, creativity and hard work instead of seeking outside finance. The aim is to maintain a strict discipline on cash flow by managing costs very closely and trying to get the business up and running at cheaper and lower costs. Bootstrap financing is one of most effective and inexpensive ways to ensure the business’ positive cash flow. Bootstrapping means less money has to be borrowed and interest costs are reduced.
Bootstrap financing is designed for mainly for small businesses, or small-scale enterprises. Majority of big businesses do need lots of cash flow to fund and operate their businesses, therefore bootstrap financing is not suitable for them because it doesn’t give them enough funds they need to run their businesses successful.
Though bootstrap financing has its clearly useful especially for small businesses, it is important to know it’s downside of it. For instance the danger of being undercapitalized; there is a need to be some reasonable amount of cash available to run the business. Excessive thrift can be counterproductive and can send out the wrong signals to staff, customers and prospects alike.
It’s always important to have some financial slack or in other words a business’s savings. One, so that during rainy days or difficult period, the business will be able to survive and thrive. Second, so that when other business opportunities arise the business will be able to utilize the opportunities to grow or expand, and also make profit. Too little financial slack prevents the business from exploiting profitable investment opportunities.
Angel Investors & Venture Capitalists
Almost the same except that a venture capitalist is an investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities markets, while an angel investor or business angel is an investor, not counting friends and family, who either provides capital to startups or supports small companies individuals in exchange for ownership equity or convertible debt.
Another difference is that with business angels, they can decide to invest even early on when all you have got is a great idea and so invest in you rather than in your company. They have more power to decide to whom they should invest to, and how to make their offers. Venture capitalists are typically formed as limited partnerships where by the limited partners invest in the venture capital fund. In that venture capital fund there will be a fund manager, or sometimes called a general partner, and the job of the general partner is to source good deals and to invest in the ones that they think will return the most money to the limited partners.
The business angel can become the venture capitalist when decides to join some business angel groups or angel networks or investment funds where several investors combine their capital so that together they can invest in more opportunities.
Go4funding.com is one of the examples that provide a network of several business angels and venture capitalists listed on their website. Some of these angel and venture capitalists networks have no cost to use their services and some do charge for their services. Entrepreneurs looking for funding simply can register for free on Go4funding.com and post their capital needs or decide to contact directly particular business angel or venture capitalist group listed on their website. Continue reading “Business Financing”