So, you’ve had an idea for a great new business, you’ve created a killer business plan, and you’ve worked out the minimum viable product.
The question is, how do you secure the funding for that first initial step? How do you take the business idea from just that, an idea, to fully-fledged reality? Some of the most successful entrepreneurs started out in a garage with only a few dollars.
Unless you’re looking to follow the e-scooter business model, you probably won’t need a multi-million dollar venture capitalist-funded investment. Instead, there are some much more manageable ways to secure the cash you need to get things off the ground:
Start small by asking those closest to you
Many businesses begin with small investments from family and friends and go on to be very successful, but it can understandably be quite difficult both for you to ask them to put their money on the line, and for them to risk losing it. To avoid some of the risk, wait until you have a formal business plan in place, including profit forecasts. You’ll also need to come to a formal agreement; are they loaning the cash to you or are they buying equity in the company that you’re creating?
Think carefully about whether you want your rich, but eccentric Aunt to be the majority shareholder, and make sure that she knows that there’s no guarantee that her investment will ever be returned. If she’s still interested, then you’ve got your first investor!
Take out a business loan
If you’ve been assured that your business is viable, or you’re at a later stage, let’s say you’ve already made a few sales, then the next step could be to borrow a larger amount of cash. There’s a number of ways that you can do this: You could borrow against the value of your home by remortgaging it, for example, offering up your house as collateral.
Understandably you have to be very sure that your business is viable with this option. Other paths to loans include Small Business Administration (SBA) loans, which can be very useful, but come with specific criteria such as meeting the legal definition of a small business.
Make it a bit less personal with crowdfunding
So, maybe you came to the conclusion that actually you don’t want this to be a family business, no matter how wealthy your relatives are. The next step is to ask strangers. No, we aren’t suggesting approaching people in the street, but taking your business idea to the potentially unlimited investment pot that is crowdfunding.
Set a realistic goal, based on the minimum viable product that we mentioned earlier. Maybe you need $2,000 to build a working prototype, or $750 to hire premium advertising space for your service, give yourself a realistic, but not overly-long time to raise these funds, 30 days for example.
You also need to offer crowdfunders something in return. Unlike formal investors that require equity in your business, with crowdfunding, you can promise them a sample of your product or an exclusive gift.
Whatever route you decide to take, you’ll need to make sure that your business is viable and that you get as much advice as possible at every step.