You are in the process of creating a startup business, and it is now "business plan time." You have almost everything under control, except for the finances. Money is the lifeline and oxygen of any business.
Should you seek out funding right away for your startup, or should you just run with your business and make money?
The answer isn't straightforward as all businesses and startups are not created equal. There are many variables to consider, such as industry, business model, preferred sales method, and markets.
Whatever the case may be, you will still have to decide on how you choose to fund your new business. Seek out an investor, or bootstrap your new business.
Before you decide, you should first consider these crucial factors below regarding the realities behind funding your business.
Time To Become Fully Committed
If your business is a startup project, then you will need to consider some form of funding to keep the business going (or to launch the business properly).
You can choose to raise money for your project, or you could take the money making route and possibly bootstrap your business to success.
Whichever one is your choice, you must understand that either way you will have to be fully committed to the cause. Raising money for a startup is in no way a simple task. It can be very time consuming and can leave you to become unproductive.
An example would be to set up a string of meetings with investors. You end up spending all your time in boardrooms instead of at your business premises.
If you choose to bootstrap your way to making money through your business, then this will require your focus and dedication at the business. You will have to fully optimize your business to turn it into a money making machine.
This process takes time which means that it will be a while until you have made up the required funding needed to improve your business.
It also does depend on the type of business as well. If you are launching an online store, it may be a good idea to get all the processes in place and try your hardest to make money first before you seek out funding. Investors prefer to deal with an already functional money making business.
If you plan to launch a single product, like a laptop bag, then seeking out startup capital for production needs first can be the ideal scenario for you.
Is Your Business Profitable?
Investors and entrepreneurs always ask this question, “is the business profitable and scalable.”
Profitable is a simple concept meaning that the business churns out a positive balance after subtracting your expenses from your sales. This means that your business is in a “good financial position” and can sustain itself.
However, it doesn't necessarily mean that it is scalable. Will the business be able to grow in the years to come? If the answer is no, then your monthly profit will lower substantially over time due to inflation.
Your expenses and staff wages will increase, but seeing that your niche business has only a set amount of clientele means that you won't be able to see future growth to combat inflation.
The same goes for a business that is only geared to handle a small number of customers. If you can only offer to serve three clients a day now, then what will you do when you will be required to serve at least five a day in the future?
Be very wary of the future of your business before you seek out further investments or before you decide to dedicate all your time to making money.
Raising Money When You Don't Really Need To
Your business may not need any investment as it could be a design or service-oriented business that is run solely by yourself. An example could be either a web design or photography business.
You are pleased with your current modest income and don't really see a need for an investment. So you continue on your path to make money instead.
However, if you are located in an area that has many problems that your business can solve, then you should perhaps seek out an investor to build an infrastructure that can cater to the community.
Take web design again, for instance; you are in a small town that has zero web design firms. Everyone in that town is interested in taking their businesses online.
So far only you can do it, but you don't have the time and resources to serve the demand. It will be costly just to hire more staff to help you.
Getting an investor on board to inject some cash into your startup business can grow your business much faster. The financial boost will allow you to deal with more clients than you could have dealt with before.
The investment can also be seen as an investment for the betterment of the business community.
Maintaining a Balance
It isn't always a definite choice to make. There will be times when you will be required to merely focus on making money, and times when you will have to focus on funding.
Most successful businesses have the resources to keep the doors open. However, even these established businesses need a quick financial boost from time to time.
An example would be car dealerships. They operate normally without necessary funding for almost 11 months in a year.
In December, these dealership purchase four to five times more stock than usual. Because cars are considered expensive, the dealerships are required to seek out short-term funding to meet their quota.
Such a strategy is evident in many different businesses in all kinds of industries. Focus on optimizing your business to make money, then sell out investors during busy times when you require large amounts of stock.
If you can sell that stock quickly, then you will be able to pay your investment back quickly, and you will profit from these transactions quickly as well.
If you are looking to start a new business that will maintain itself for many years to come, then you will have to sharpen up your skill regarding making money and fundraising.
That means being able to run a successful operation while knowing how to put together a business plan and pitch to investors. These are skills that all successful entrepreneurs should have. Keep working at learning more regarding this.