Getting your business started
If you have a great business plan but just need the money to get started, here are some funding options.
Last week we profiled four inspirational entrepreneurs and asked them for their tips to the top. If you are interested in starting your own business, you will know that step one is putting together a solid business plan and step two involves finding the funding to start your own business. FAIRLADY did some investigating to find out more about funding options:
Getting friends or family to invest
Instead of starting with banks, it can be easier to approach friends or family members to fund your business. But before money is exchanged, ensure that legal documents are drawn up to outline the guidelines of the investment. The money could be in exchange for shares; a management role in your business or it could be treated as a loan. If it is the latter then the terms for repayment need to be agreed upon in advance.
This form of investment is very difficult because the risks are high and the selection criteria are even tougher. Not only does your business plan have to be solid, you also have to prove that the investors will get high returns within a short period of time. The venture capital fund makes money by owning equity in the companies it invests in, which might mean that you will end up with a new boss instead of being the boss.
Most start-up businesses do not have the expertise to run all elements of a business. With incubator capital you receive support from an already established company if they believe your business has the potential for significant growth. With this support, your chances of success are high.
Aside from the concern of high interest rates, banks like to invest in companies that can guarantee returns. You might have to use personal assets as collateral to secure your loan and you could risk losing everything if your business fails. It’s a long stressful process and banks rarely give full funding to start-up businesses.
Work full-time and fund your own business
The other option is to work full-time and use your income to fund your business. However the physical and emotional strain that comes with two jobs is not easy. There is a risk of neglecting one and losing your job or seeing your business fail.
There are a few government funding options available and some cater specifically for women entrepreneurs such as Women Entrepreneurial Fund from Industrial Development Corporation (IDC). This fund applies to start-up businesses that have a minimum 50% shareholding by women.
We have asked Caro Erasmus, StudentCo owner, for her advice: ‘My advice would be rather to allow your business to grow organically and fund itself – mine is still very small, but the fact that I have complete control and don't have a partner/investor looking over my shoulder is a plus point. As a start-up entrepreneur, the trick is to use an idea that does not need major financial investment to start with, and grow from there. That old adage that it 'takes money to make money' is false. It takes time, ideas and persistence.’