By Valentine Okolo
The financial analysis section of your business plan should
contain the details for financing your business now, what will be needed for
future growth as well as estimating your operating expenses. Starting a small
business doesn't have to require a lot of money, but it will involve some
initial investment. There are a number of funding options including:
Personal Financing
Small business loans
Small business grants
Angel investors
How you will finance your business is crucial. There are
several questions you may need to ask yourself before arriving at a funding
option.
These questions include:
·
What initial investment will the business
require? How much will also be required to run on a daily, weekly, monthly and
yearly basis?
·
How much control are you willing to relinquish
to investors?
·
When will the business turn a profit? Which
expected week, month or year?
·
When can investors, including you, expect a
return on their money?
·
What are the projected profits of the business
over time? One month, year, two years, five years?
·
Will you be able to devote yourself full time to
the business, financially?
·
What kind of salary or profit distribution can
you expect to take home?
·
What are the chances the business will fail?
·
What will happen if it does?
·
And the BIG QUESTION? How long can you sustain
the business if you are yet to make profit? In other words, you are yet to
break even.
Most people make the mistake of calculating the initial startup
costs and then jump right into the business. This is extremely wrong.
Unless you can reasonably estimate how much it will cost you
to startup, hit the ground and run the business financially for at least 18-36
months and reasonably obtain these funds(assuming the business is yet to make profit
for this period of time and taking into consideration all operating costs for
this period) then I advise you do not start up.
The truth is that no business starts making profit
immediately. In making your financial projections, you must anticipate that it
takes time to build customers and a new business may pick up slowly, operating
costs may not be exactly as earlier anticipated, more hands may be required
meaning more expenses and an un-eventuality may occur.
There are a variety of money sources for small business
including grants, small business loans, angel investors and much more.
Debt & Equity
Financing: Debt and equity financing are two different financial
strategies: Taking on debt means borrowing money for your business, whereas
gaining equity entails injecting your own or other stakeholders’ cash into your
company. This is why I asked the question at the introduction "what do you
do with your income”
Personal Income: In
my opinion, personal income is the best way to raise money for your business.
Trust me, it eases a lot of stress from you and you have time to adjust
properly and grow your business. Decide how much you need to save
monthly/yearly in order to raise capital for your business. Don’t worry if it
takes years to raise this. It is better to start with sufficient capital, than
to rush yourself out of business. Better still, start small. It is better to
start small and grow, than to start big and crash out.
Friends & Family:
Finally, consider friends and family members. This can be a good source of
raising capital.
Small Business
Grants: Grants are monies/financial assistance which are not a loan, and do
not need to be paid back. They are usually granted by governments or special
organizations as seed monies/ start up funds for new businesses in other to
promote growth and development.
First Time Small
Business Loan: The best place to start when it comes to finding your first
small business loan or credit is not with your banker, accountant or lawyer but
with you. The business is the owner so your personal credit history is an
important aspect in getting a small business loan. However, banks can be a good
source for generating small business loans. Always ensure that the terms of
repayment are such that are favorable for your business growth and would not
rub you off working capital. It is advisable you contact a financial adviser
before taking such loans to avoid making a bad business decision.
Find an Angel Investor: An angel investor is an affluent individual
who provides capital for a business start-up, usually in exchange for
convertible debt or ownership equity. An angel investor can help take your
company to the next level in one a jiffy.
Article By Valentine
Okolo
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