Are you considering starting your own business? The number of home-based entrepreneurs has been growing over the years, as many busy parents are choosing to stay at home with their kids and others are choosing to escape the daily commute for the comfort of their own home.
While you may desire to start your own business, having the right amount of funds is also paramount to realizing this dream and counts when doing business. This step-by-step plan gives an overall picture of how you can fund your own home-based business.
Bootstrapping is a form of start-up financing, where a business is financed entirely independently. The advantage of this form of financing lies in the fact that founders learn to be economical and effective right from the start. Bootstrapping is certainly tough, but that leaves you freer in your business decisions than having investors co-decide on their shares.
For most new businesses, the existing budget, the resources and sometimes also the time are scarce. For this reason, the start-up and growth strategy will be adapted to these circumstances when going down the bootstrapping road.
If you do choose this method of funding, you can break all the business funding rules later on, if someone believes so much in your idea, that they want to invest in the company. That brings a decent boost of course! It also makes sense for many products and services because they quickly need a lot of money to be marketable, competitive and scalable.
Startup grants can be challenging to get and are usually available from organizations out to make a difference. To receive a startup grant, a few formal requirements have to be met such as having a solid business plan. Creating the business plan is quite a job and takes a lot of research and time. However, since a business plan can later also be used as a guide for the business, the work is worthwhile.
Another form of startup financing is borrowing money from a loan company. When applying for a loan, it is beneficial to use your own capital as a sign that you believe in your project and bear part of the financial risk. Loan companies also check your credit so make sure it is up to scratch before applying. Some companies such as Bonsai Finance provide bad credit loans, so do not feel that all hope is lost.
This form of financing fits in very well with the world of openness, mutual support and innovativeness. If you can involve your community from the beginning, you will be successful. The advantage of crowdfunding is that your popularity or success will give you a good indication of whether the product or service is functioning on the market, even before the product is launched or set up.
The phenomenal marketing effect that a well-implemented campaign can have will bring great benefits to the business and can, therefore, facilitate follow-up financing via a bank. Successful crowdfunding also offers fast liquidity right from the start. There are various different types of crowdfunding which include:
- Equity-based crowdfunding
In equity-based crowdfunding, investors receive a share in the company with which they also participate in sales. The goal of investors is usually a later exit.
- Lending-based crowdfunding
For lending-based crowdfunding, lenders offer a loan with a fixed interest rate and a fixed term. For entrepreneurs, the main advantage here is that they do not have to convince banks to lend.
- Donation-based crowdfunding
This crowdfunding is based on donations so that donors cannot expect direct compensation. This form is most suitable for charitable projects.
To find an investor, you need to think like an investor.. Finding investors, as a means of financing one’s self-employment and the business associated with it, is also known to most and has been rendered socially acceptable by TV shows such as Dragon’s Den. However, it quickly becomes clear that convincing investors of their ideas and collecting money can be quite tricky.
Investors tend to focus on companies in different phases: some invest in founders, others wait until the company has reached a certain size.
Investment is always the result of long discussions and negotiations, and as a founder, you should also be able to give a potential investor a charming look and be sure that you are choosing the right partner. After all, investment is like a marriage. If you have insights and a good network, you stand a better chance, which is super important because, without networks, no investor will be interested.
Try To Convince The Bank
Business loans are very handy, but if you want to borrow from the bank, a professional business plan and good preparation for the bank discussion are absolutely necessary. If the project is well prepared, presented in the business plan and promises to be successful, then there are good opportunities for granting a loan. However, the bank will not waive private collateral and a corresponding credit rating.
In venture capital, investors provide capital to their founders depending on the stage of development of their product or service. For this, investors are often ready to consult with young entrepreneurs and also acquire shares in companies. The financial scope therefore increases, but the founders bear the responsibility not only for themselves but also for the investors who now want to be kept informed about the state of development and usually also constant reporting. After all, investors go straight into the early stage of development of a business, the risk that the company fails and want to hedge accordingly. As a rule, investors only get involved in later stages of the foundation when the risk has fallen.
This form of financing works best for technological or pharmaceutical startups who want to bring a promising product to the market that has great prospects for success and growth.
If you regularly attend angel investor events, you learn relatively quickly who might be the right investor for your own company. Business angels support founders with their know-how but generally do not invest as much capital as venture capitalists. In doing so, they act as consultants.
Young entrepreneurs can benefit from the wealth of experience of business angels, who use their networks and contacts, which can often prove to be significantly more valuable than pure capital in the early start-up phase. Business angels are risking far more than venture capitalists as they invest during or shortly after inception, at a time when success is by no means certain.