Money is essential to running a business, but it’s also something many small business owners don’t have. Fortunately, there are ways to get cash for your new company and start the growth process. You can look into getting funding from investors or seek out loans from banks and other institutions. If you need some extra cash to start up your small business, consider these options:
Choose Your Financial Advisors
After you’ve done the work to find your investor and negotiated a deal, you’ll need to make sure you have the right team in place to help you close the round. When choosing financial advisors, it’s essential to consider their experience with your type of funding and whether they will be good partners for your company.
As with any professional relationship, both parties must be comfortable working together. In addition to assessing their experience level, ask yourself if they seem like someone who will work well with you on an ongoing basis.
Do they share similar values? Are they easy-going? Will they get along with your team? If these qualities are vital for you personally (as well as professionally), then finding a potential partner should be an enjoyable process rather than a stressful one.
Understand the Basic Types of Investors
Understanding the basic types of investors and how you might approach them is essential.
Venture Capital Firms
Venture capital firms are generally looking for startups that have already reached some degree of success and are looking for funding to take their company or product to the next level.
They’re usually willing to wait longer than other investors before seeing a return on their investment, but they’ll also demand a larger share of equity in your company. If you’re considering venture capitalists as potential investors, it’s best not to count on them as one of your primary funding sources.
Private Equity Firms
Private equity firms are similar to venture capitalists (e.g., they often look for later-stage companies). Still, they tend to invest small amounts per investment to make more investments overall. Upwards of thousands instead of hundreds or even millions like VCs will do—and they’re also less likely than VCs are willing to get involved until after an initial public offering (IPO). Because private equity firms typically focus on buying businesses from their owners or merging them with other companies.
Know How Much to Ask For
How much money do you need?
When starting a company, it is essential to understand how much money will be required for your business. Depending on your business type and how much funding it takes to get started, the amount of money needed can vary widely. It all depends on where you are in the startup process and if your idea has a proven track record or not.
How much money can you raise?
Before attempting to raise funds for your new company, research what types of investors would be interested in investing in your company and how much they typically invest in ventures like yours.
Amounts spent per employee?
Use this number when calculating how many employees should be hired based on projected sales levels over time (monthly).
Choose the Correct Type of Funding for You
When raising money for your business, it’s essential to understand the difference between debt and equity financing. Debt financing involves taking out loans from banks and other lenders. Equity financing is when you sell a stake in your company to investors.
You will want to decide if you wish to take on debt or get into general partner private equity financing, based on what type of investor you need, how much money you are looking for, and how much control over your company they will have as they invest their time and money into its growth.
The pros of taking on debt include:
- It’s easier than getting an investment banker involved in your fundraising efforts; therefore, it’s cheaper.
- You can get funding faster by calling a bank rather than waiting months while writing term papers on why investors should invest money into your business idea.
Raising capital is an art and one that you should take seriously. If you don’t know what you’re doing, your company could end up in serious trouble down the line. That’s why it’s important to know what funding sources are available before trying anything new.