Whether you’re a new startup or an established small business, at some stage of the cycle you may find the need to obtain additional funding. Finding the right option for your business can be daunting and with the number of options available it can be confusing – but luckily we’re here to fast track that process for you.
Why do you need funding?
It may seem obvious, but before you search for funding it’s important to establish your why and what.
Why do you need the funding and what benefits will it bring?
This could be due to hundreds of reasons, but here are a couple of examples:
- Why? To make improvements to existing infrastructure. What are the benefits? To boost operational efficiency.
- Why? To finance a new product launch. What are the benefits? Increase sales and diversify brand offerings.
- Why? Acquiring an office space. What are the benefits? Gain credibility and have a space to run your business from.
- Why? Expanding operations. What are the benefits? Increased production and reaching new target audiences.
Having a clear mission statement for the funding is essential. Furthermore, if you can’t answer these two simple questions then did you really need the funding in the first place?
You will also need to make an informed decision on the utilisation of the cash. Let’s say you receive funding for equipment, but do you plan on owning the asset or leasing it? Is the equipment likely to become superseded because of technological advancement?
As part of the mission statement, clearly identifying these variables will save a lot of trouble in the future.
Exploring the options
There is an entire spectrum of funding options, but be mindful in recognising the most appropriate funding which considers taxes, depreciation and from an ownership perspective.
But for now, let’s explore the choices at hand.
Crowdfunding
Not the most popular form of funding, but one that has definitely rewarded businesses with unique and promising concepts is crowdfunding.
The most common platforms are GoFundMe and Kickstarter, which involves setting up an online campaign and pitching your idea to the public. These people may then choose to donate money towards your business.
This form of funding relies on strong communication because in essence you are formulating an elevator pitch to a stranger. It also depends on a powerful business idea or story to make your pitch stand out in a sea of options.
Crowdfunding involves no upfront fees, making it a fast way to raise finance while also being a great tool for marketing. If you’re crowdfund is successful, not only have you raised enough cash for your business, but you have also created a large awareness of your brand.
Another understated advantage of crowdfunding platforms is the number of investors which are willing to finance unconventional business concepts.
An example of a successful campaign is SkyBell, which raised up to $600,000 within thirty days for its smart video doorbell product. The bottom line is, to be successful on a crowdfunding platform you must have a very unique proposition.
Series funding
This is a type of funding available to start-up businesses in Australia, which enables businesses to access additional capital through a series of rounds. Series Funding can be used to finance new projects and product launches, hire more staff or upgrade equipment and technology, as well as improve existing infrastructure.
When obtaining series funding, businesses are required to pitch their business ideas and strategies to investors, who then decide whether they wish to invest in the venture or not. This form of funding involves multiple rounds of investments; each round is designed to support the development of the business and help it reach the next stage of growth. This type of funding usually begins with a seed round or pre-seed round, followed by Series A and B financing rounds, with further rounds up to G if you make it.
The key difference between series funding and other types of investment is that investors are committing more money over an extended period. This gives them more control over how the money is being spent and allows them to monitor progress more closely – meaning that they’re less likely to pull out should any issues arise. It also provides founders with greater flexibility when it comes to decision making.
Successfully obtaining series funding requires businesses to have an effective strategy in place; this includes having a detailed business plan outlining how their company will make use of the extra funds. The key considerations when creating such a plan include understanding customer needs, developing successful marketing strategies, expanding production capabilities and demonstrating potential for growth. In addition, entrepreneurs must ensure that they have sufficient managerial resources in order to execute on their goals and ambitions for the business going forward.
Finally, it’s important for businesses seeking series funding to research potential investors thoroughly; this includes gaining insight into their investment history as well as having an understanding of what kind of companies they tend to back financially. Doing your homework before reaching out is essential for successfully obtaining this type of funding – not only does this give you an advantage during negotiations but it can also serve as great practice for future fundraising efforts too.
Angel investors
You’re very own angel which delivers a large chunk of cash is the premise of this form of funding.
Angel investors are also known as private investors and are individuals of a very high net worth which provide finance for small startups or entrepreneurs. This form of funding is favourable for those at their first step and they often present better terms compared to other lenders.
In exchange for financial support, angel investors will take ownership equity in the company. They typically invest in innovative concepts and are not concerned on the immediate return.
Angel investors can be approached directly or will be present during series round funding.
Venture capitalist
Opposite to the source of funding from an angel investor, a venture capitalist is a firm where multiple partners invest in a fund to create a pool of money. All investment decision are made by a group of people and in-return, a substantial stake of equity is acquired.
Venture capitalists are usually not interested in startups and will direct their investments towards businesses that are ready to commercialize their idea – making this form of funding a direct contrast to an angel investor.
They’re often present at series round funding, so there is plenty of opportunity to get in touch.
Government grants
Government grants are a great way for businesses to access additional capital in order to grow and develop their operations. In Australia there are numerous types of government grants available, ranging from small business grants to research and development grants for innovative projects.
Small business grants are designed to help small businesses get off the ground or assist existing entrepreneurs with accessing the necessary resources they need to grow. These grants can provide funding for business start-up costs such as purchasing equipment or recruiting staff, as well as covering marketing and promotion expenses. Small businesses can also utilise grants to cover training costs or fund new product developments. The government provides a range of information on eligibility criteria and application processes that can help entrepreneurs find the right grant for their needs.
Research and development grants are another type of finance available from the Australian government. These grants help support innovative projects that have potential commercialisation outcomes; this means that applicants must demonstrate how their project will lead to tangible results or marketable products/services. Depending on the project’s objectives, there are different categories of R&D grants available – including Early Stage Commercialisation (ESC), Productivity Enhancements (PE) and Industry Expansion (IE). It is essential that applicants conduct thorough research into these categories in order to identify which one best suits their project’s requirements.
In addition, there are a number of industry-specific government programs that provide targeted finance for specific sectors in Australia; these include tourism, energy efficiency and renewable energy initiatives, agricultural industries and manufacturing industries, amongst others. These programs aim to stimulate certain economic activities and encourage innovation within particular industries; they typically involve receiving funds over multiple stages in order to cover all aspects of research, development and delivery of products/services within these sectors.
Although applying for government grants can be a time-consuming process, it is often worth undertaking especially if you have an innovative project with potential commercial outcomes; researching potential grant opportunities is also important as it may give your business access to additional resources otherwise out of reach given current financial constraints.
In the grand scheme of things, there are plenty of government schemes around and all you need to do is be aware of them.
Government grants can range from $100,000 to $1,000,000 in project funding.
To find what grants are available for your business, simply visit the grants and program finder by the Australian government.
Bootstrapping
This funding method involves creating a business with little or no external help. It relies solely on self-funding and utilisation of internal sources, such as friends and family.
If you’re left with no option and have to bootstrap, then you will need to put a lot of effort towards your business. Bootstrapping is considered the hardest method in terms of funding but enables a business owner with maximum autonomy and complete control over the business’s decision making process.
Whilst bootstrapping you’re more likely to incur personal debt, which leads perfectly onto our next and final funding solution.
Debt financing
No one wants a loan but as a startup or small business it’s very common to take part in debt financing – you’re not alone.
Business loans can be used to finance a variety of expenses, including investments in new equipment and materials, expansion of operations, hiring of staff and other operational costs. Business loans are typically secured against the borrower’s assets, with repayment terms ranging from 1-5 years depending on the loan product.
When applying for a business loan, it is important to consider what type of financing is most suitable for your business needs. For example, some lenders may offer short-term working capital loans while others may offer long-term investment or development finance. It is also essential that you look into the fees associated with each loan product; these fees will vary depending on the lender and the specific terms of the loan.
It is important to have an accurate assessment of your current financial situation before applying for a business loan; having up-to-date records such as your cash flows and balance sheet will help you assess whether taking out a loan is financially viable. You should also research potential lenders and compare their interest rates, fees and repayment terms in order to find the best deal for your business.
Overall, a loan can be a great option for startups and small businesses but it’s essential to understand all associated costs and ensuring that you can meet all repayments on time – failure to do so could put your business in financial difficulty.
To sum it up
Take the time to research your options and understand the implications of all of them. Some require giving a percentage of ownership which reduces autonomy, while others are a grant to support your earlier stages – ensure to make an informed decision and reap the benefits of additional funds for your business.
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