Finding cash for your start-up
So you’ve got a business idea that you think is a real winner, but don’t have the start-up cash to get it off the ground? Don’t give up yet – starting a small business isn’t impossible. There are many funding sources out there and plenty of resources to help you apply for the money.
To convince someone to lend you money, you need to have a winning argument – a reason why they should invest in you. When you’re starting a business, a comprehensive business plan should clearly set out what you plan to achieve, how you will do it, the potential risks and, most importantly to your investors, how much you need to borrow and how you plan to pay it back.
Not sure how to build a business plan? Try your local small business development centre. Government-funded, they provide free advice and template documents, plus plenty of other advice on how to start a business.
Once you have a business plan and you know how much money you need, think about where you can look for that money. Typical options include family and friends, a small-business bank loan or perhaps a crowdfunding appeal. Depending on what kind of business you are looking to open, you may even be eligible for a government grant – the small business development centres can help with that information.
For more serious dollar amounts, options include venture capital, where investors provide funding in exchange for a stake in the business.
Next? Take that business plan and start knocking on doors. Here’s how three small businesses made their funding – and their business – happen:
Andrea Martins, GreenSocks
Raised a total of $40,000 through an accelerator program.
“We were looking to start a one-stop, online site for organising and managing your lawn mowing. We were looking to raise around $40k to $50k to give us a six-month runway while we tested the viability of our service.
“We didn’t just want a bank deposit, we wanted ‘smart money’ that came with mentoring and connections that would add even more value to our company in the longer term, so we went looking for accelerator programs. Most required us to move to Sydney, until we found that the muru-D accelerator program was partnering with Shark Tank‘s Steve Baxter’s River City Labs for its first intake in Brisbane.
“After an application process, pitch night and boot camp elimination process, GreenSocks made it onto the accelerator program with four other teams. Each team received $20k in exchange for three per cent equity, and has just been extended to receive a further $20k for a further three per cent equity. The money has been a godsend – helping us sleep well at night – but the masterclasses, mentoring, networking and peer collaboration have made the experience invaluable. I would highly recommend a credible accelerator program like this to anyone trying to raise money for their start-up!”
You can follow the GreenSocks start-up journey online.
Daniel Brady, Heavenly Hammocks
Borrowed $5000 from his mum.
“I borrowed $5000 to order the first batch of products because I didn’t have enough cash, and I didn’t want to liquidate any other investments.
“It’s a low-risk loan for her, since I could pay her back from my other income even if the business failed. It’s a supportive, trust-based loan, and I paid her back the original loan plus the interest she lost by not having it in the bank. It’s easy for my parents to trust me, since I have never failed to pay them back.
“The loan was repaid and the business is relatively successful and growing, but the second batch of products was quadruple the size, so I had to borrow again because the business profits and cash flow couldn’t support such fast growth.
“The third batch of products should be bigger still and may need a loan again, but by the fourth the business should be cash flow positive, funding its own restocking and growth.”
James Jordan, Danny Burrito
Crowdfunded $10,000 through Pozible.
“I had spoken to a few investors and friends who were willing to put in money to launch my business, but we couldn’t agree on equity. The business was just an idea, and obviously I thought it was worth more than they were willing to risk on the investment. Then I decided to try crowdfunding.
“Crowdfunding is a lot of work – it’s not free money. I was very fortunate I had a PR team that worked on getting publicity in print and online; we made funny videos, posted photos on social, contacted radio stations, met with bloggers and did interviews. It was a very busy non-stop month of pushing – basically my full-time job!
“Then you really have to ask people you know for the money. I exported all my contacts from Gmail and emailed them all semi-personal messages with a video and a link to the Pozible page, asking them directly to pledge money. Tim Ferriss wrote a really good blog post about how to run a successful crowdfunding campaign and I followed most of that. Our product was also unique enough that people were interested – if you’re trying to fund your latest album I think it would be a lot harder!”
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