When it comes to funding your new business start-up working out whether you need investment or whether you can go it alone is a big decision, but generally, one that has a fairly plain answer. Should you go for funds from investors, borrow money from friends and family or go it alone and only invest your own money into your new venture – bootstrapping your business?
For a large part, it hinges on your own financial situation and whether you have the cash to inject into your business now, if you have the time to take on one or more additional jobs to help raise the capital you need or if there’s simply no way of making that money without a little help. But what else should you consider?
Choosing how to fund your business and your own personality
This important decision depends on the business you’re setting up and how much investment might be needed for things such as business premises, fixtures and fittings, the tools of your trade, materials, other supplies you may need and your human resources costs.
It also depends on the type of person you are. You’ve already shown your entrepreneurial spirit by starting the ball rolling, but that doesn’t necessarily mean you have the financial resources or know-how to make it work and perhaps an investor can give you some added confidence in areas you’re unsure of.
Bootstrapping your business
Even if you have the money in the bank to start up your company it’s important to remember the ongoing costs that you’ll need to cover. Considering what will suffer as a result of redirecting that money is vital. Will you have enough to pay your mortgage or rent, to buy the weekly groceries and to pay your insurance and utilities bills? That’s certainly what US-based company Matchist found when they started looking at growth strategy as well as day to day business.
However, if your business doesn’t need much start up capital – if you have few overheads and no real production needs other than your own time – and if you’re successful and are making a good profit from an early stage, funding your business yourself does mean that you won’t need to answer to anyone else when it comes to your business decisions and you won’t need to share your profits either.
Three pros of bootstrapping
1. You can start up as soon as you’re ready.
2. You have no one to answer to for your business decisions.
3. You don’t need to share your profits with others.
Going for funds from investors – angels and venture capitalists
If you don’t have the finance to go it alone or if you think it would be limiting going for funds from investors, either business angels or venture capitalists, can make a great difference to your business success. It can also take a lot of time and effort to find the right investors and then to convince them to actually invest!
Being persistent is key and you don’t always need to take no for a definite answer. However, you should make sure that you don’t give too much of your business away in the process. Ensure the deal is fair and that you’re getting the right return for your own hard work and profit. Getting the right investors on board can be a long game and one you can’t afford to get wrong.
Three pros of funding from investors
1. You’ll benefit from additional business know-how.
2. You won’t need to be quite so cautious about finance.
3. You may be able to build your business and grow more quickly.
Your limited company and where to find finance
When it comes to finding investors for your business setting up as a limited company is a key element, defining your commitment to the long term of your business success and giving you the option to offer shares in return for funds. Forming a limited company is quick and easy, especially with a formations company helping you along the way, and it’s affordable to do before you start approaching investors.
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