12 May Five smart ways to raise capital for your business
Running a business with inadequate capital is one of the most frustrating situations any business owner can find themselves in. The cost of starting a business usually comes easier than the expenses of managing it. And quickly, any business can start to sink because there isn’t enough money going into its bank.
So, how do you raise funds to grow your business? We will discuss five effective ways to fund your business, including the easiest way to get investment funds. These methods depend on the amount of money you want to raise and the current state of your business.
For the sake of clarity, I will outline the five ways starting from small to large-scale fundraising.
Now, let’s dive straight into it.
Table of content
- Use your savings
- Ask friends and family
- Apply for a loan
- Launch a crowdfunding campaign
- Reach out to investors
Use your savings
Your savings is one of the most accessible funds to you- it’s personal anyways.
You may want to use your savings if your business doesn’t need too much money to run. In such a case, your business is probably in the seed/startup stage, or it uses small-scale assets. Your savings may also be your go-to spot for funding if you have a main job that pays you regularly.
If you want to use your savings for your business, you need to be disciplined. One disadvantage of associating your savings with your business is that you can easily lose track of your expenses, and start to treat your business like a personal resource.
If you’re using your savings for fundraising, ensure to;
– Pay yourself. Set your salary aside from your savings to manage your funds better. Don’t force yourself to work without a salary. You’ll eventually need some money, and when that happens, you may tamper with your savings.
– Keep accounting records. It’s easy to reach your savings to clear some bills. Thus, you should keep strict records of how much you’re spending on your business, down to every penny. That way, you won’t mix your personal expenses with your business’s. And you can account for your business’s costs.
– Use a separate business account. Do not consider sharing an account for your business and personal use, particularly if it’s the same money you’re spending both ways. Having a separate business account can give you a clear head about what you’ll spend on. So you won’t be buying new business stocks alongside a television set for your room.
Ask friends and family
In a case where you don’t have a steady income source to fund your business, you can turn to your loved ones.
Your friends and family can raise funds for you in the form of a gift, loan, or investment. Either way, you need to prove to them that your business has potential. You also need to show a promising level of seriousness that their support will be worth it.
So before you send a message to your family or friends for help, keep the following tips in mind:
– Have a business plan. Just like you would with any fundraiser, you should present to your benefactor, how you’ve planned out your business. Writing a good business plan will help build trust and assurance to fund your business
– Be transparent. There’s nothing more annoying than helping someone out and then realizing your money went elsewhere. No matter what you intend to do with the money, be sure to tell your fundraiser what it is. If you intend to spend the money on paying employees, don’t say it’s for buying stocks. Transparency helps build good business relationships.
– Don’t mix emotions with business. It’s common to see people have issues with their loved ones because they took wrong decisions based on their emotions. Try to separate how you feel and make decisions with your family and friends on a regular day from a business moment. When finances are involved, make smart business decisions because it favors your business, not because you feel overwhelmed.
Apply for a loan
Loans are one of the first things entrepreneurs think of when considering business funding.
You can apply for a loan when you have a clear head about your business’s needs. A loan can work for a startup or an existing business.
You can get a loan anywhere: banks, organizations, individuals, government, etc. But, where you get the loan is not the question. The issue, and one potential disadvantage of loans, is the interest rate. How much are you giving back after the loan period?
Some business owners get too excited and apply for huge amounts of loan, hoping to have multiplied the money in a few months. But at a high-interest rate, you may realize that you can only pay back what you borrowed with no surplus. That kind of loan is unprofitable.
Asides from the interest rates on loans, you should also consider the other resources you need to run your business while you have a loan. Do you have enough knowledge and experience? Do you have qualified hands supporting your business? If you don’t have good answers to these questions, then you may not want to jump on a loan- yet
Launch a crowdfunding campaign
Crowdfunding is a way of exhibiting your business to many people to invest in units. It works if you need more money than a small business, but you don’t want to settle for other funding options.
Typically in crowdfunding, you may not know who is funding your business. Although it saves you the efforts of direct contact with your fundraisers, you may not always get your funds raised.
People may not raise enough funds for your business within the proposed time. So while it’s a great option to raise a lot of funds, it’s not entirely certain.
Crowdfunding is particularly common amongst agricultural companies and tech startups that venture into massive projects.
To crowdfund, you can set up a personal campaign or use platforms like Cvest or Angel investment network
Reach out to investors
If you want a fundraising means that provides you with the tools, guidance, and right connections you need, finding an investor is probably your best bet.
No investor wants to lose their money, so they put everything- capital, experience, resources- into your project’s success. Due to the experience from investors, you are also not left alone in critical situations.
Most investors are ready to invest in projects they find worthy of their money. But, one of the issues with investors is reaching out to them in the first place.
Entrepreneurs usually find it difficult to reach out to investors. While others make the move, only a few can impress the investors. So before you engage an investor, you should make the necessary preparations.
Start by making your project investment-ready; draft a business plan, prepare your pitch deck/ presentation, and do your market research. Then look up your choices of investors with enough information about their past investments and niche.
After your preparations, you can go ahead to pitch them with your idea virtually or at a physical venue. These processes are the most important, yet most difficult aspects of getting funded. Instead of doing everything alone, you can work with an investment-matching organization like the NIGL.
The Nigeria Investment Gateway Limited will go through all your business preparation processes including your market research, business development, and pitch deck creation. Then, you will get a suitable investor match for your project, and qualified consultants in the process. So, you won’t have to do any of the heavy liftings- only to focus on a successful project that has been invested in. Apply for their get-funded program to begin your investment journey.
So, there you have it: five (effective) ways by which you can raise capital for your business.
Ranking from the first to the last point, the easiest way to get funds is through your savings or an organization that matches you with an investor without hassles.
In general, you should choose a fundraising method that suits your business needs.
If you successfully read through this article to the end, be sure to drop a comment below. Let me know if you learned a thing or two, or if you have other ways by which you raise funds!
Tamilore Adeoye is the head of marketing for the Nigeria Investment Gateway limited (NIGL). She’s been a certified digital marketer for over 3 years, helping break the boundaries between businesses and their potential customers.