Discover options for getting a new business funded so that your fledgling organisation can get the best possible start in life.
Before you can start generating revenue, you may need to spend money first. Depending on your business model that could be very little, but in some cases it could be significant.
No matter what investment is required up front, there are a few key options of where it could come from.
Here are five different potential sources of funding for your business, as well as their benefits and drawbacks.
Personal savings
You could pay for all your initial business costs out of your own pocket, which is also known as ‘bootstrapping’.
Pros:
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You have total control of your money and your business.
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You’ll be the sole recipient of profit.
Cons:
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It may be a financial strain for you and your family.
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You may miss out on valuable guidance and mentorship from investors.
Find out more about how to build your business using your own funds here.
Grants
Depending on your business idea, there may be government or private-backed grants available for you to use.
Pros:
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Grants usually provide capital without requiring you to offer a share in your business or profits.
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Some grants may have additional benefits, such as offering your business free publicity or networking opportunities.
Cons:
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There may be an extensive application process involved, which will require you to be transparent about your finances and strategy.
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Grant funding can be exclusive and limited, which means not many businesses may be eligible.
Find out about grants for Australian businesses here.
Loans
You could borrow money from banks or other financial institutions.
Pros:
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The funding process is relatively quick if you meet qualifying criteria.
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You still maintain control of your business.
Cons:
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The process of researching and applying for loans can be confusing and time-consuming.
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You must pay interest.
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The money must be paid back whether the business succeeds or fails, which may lead to loss of assets or bankruptcy.
Venture Capitalists and/or Angel Investors
Venture capitalists (VCs) and angel investors (AIs) are private firms, groups or individuals who provide investment in exchange for a share of your business.
There are a number of different VC funding options available to businesses, though to access these, you’ll probably have to put together a business pitch. You can read more about that here.
Pros:
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As well as funding, VCs and AIs can offer valuable advice, mentorship and access to business networks that will help your business.
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VC and AI investment can make your business seem more credible.
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You can negotiate your terms and your business relationship.
Cons:
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You may have to share the profits.
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You may be forced to give up some control of your business.
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Accessing the investors is not always easy.
Incubators and accelerators
Incubators and accelerators are organisations, platforms or programs that help you develop or grow your business. Many of them also provide business funding.
Pros:
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They’ll give you advice and guidance.
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You’ll be able to access their member network, which will help with business ideas, testing and sales.
Cons:
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These programs are often selective, so you may need to go through an application process. These may be time and resource-consuming.
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You may need to give up some equity in your business.
Crowdfunding
This involves funding a business by taking small amounts of capital from a large number of people. This is generally facilitated through a crowdfunding website or platform, such as Kickstarter or Pozible.
Pros:
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It has the potential to exponentially grow a business by generating funding, initial sales and PR from potential investors.
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You generally don’t need to repay investors.
Cons:
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You may need to create a campaign to convince people to invest in your business, which can be time and resource-consuming.
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You may need to provide incentives or rewards in exchange for funding.
You can read more about crowdfunding here.
Top 3 takeaways
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Starting up and running a business costs money. You need to consider where this money will come from.
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Potential sources of business funding include personal savings, loans, VC or Angel Investor funding, incubators and accelerators, and crowdfunding.
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When deciding which funding option is right for you, consider the non-financial investment possibilities that come with each option. The benefits of good mentorship and a connected network are often worth their weight in gold.
If you need help with your business’s finances, contact us on (08) 9200 4215 to discuss further.
Source: MYOB April 2022
Reproduced with the permission of MYOB. This article by <author name> was originally published at <www.myob.com/au/blog/ – direct link>
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