People start their own businesses for any number of reasons:
- They may have been made redundant and are unable to find employment; so they use their severance pay to turn a hobby or interest into a business.
- They may have got tired of working 9-5 for a large organisation and want the freedom of being their own boss.
- They may have a particular product or invention that they have confidence in and feel it could earn them a good living.
But what they all have in common is that they must have enough money available if they hope to make a success of it. They need money to start up the business, but they also need money to fund the day to day running costs (cash flow).
So where can you hope to raise this money?
First you need to look at your own circumstances. How much money do you have in the bank? How much is your house worth if you were to re-mortgage it? Do you have any stocks and shares? Are there any other assets you could sell, such as jewellery? But you must be realistic. You still need money to live on so you must take this into account.
Next consider if any friends or relatives would be interested in investing in your business. They will want interest on the money they lend you – or they may want to be shareholders/partners in the business and take their share of the profits. Whatever you work out between you, make sure that the necessary legal aspects are covered and that everything is clear between you. This is essential if you are to avoid arguments and wrangling at a later stage if the business becomes very successful – or, alternatively, fails!
If you want to avoid involving your family or friends, then you will need to approach your bank for a loan. If you do this, they will expect you to have prepared a thorough business plan so that you can show them that they will not be risking their money unnecessarily. You also need to take into account the fact that they will expect you to pay the money back in regular instalments – so you will have to allow for this in your cash-flow forecasts.
Finally, a way of raising finance that has become more popular over the past few years is via crowd funding websites. They accept cash from investors who would like a higher rate of interest on their money than they would get from a high-street bank, and then lend it to businesses. The returns might be higher for the investor – but it is also riskier. Put ‘crowd funding’ into Google and you’ll see many companies now offering this service. But take care and check them out thoroghly as the industry is still not as well regulated as ordinary banking.
So, if you are thinking of starting your own business, these are just some of the routes (or a combination of them) that you could take to make your dream a reality.
Author: Diana Nadin
