In business classes, people teach about many things, but there are three important things that your business needs in order to continue running seamlessly.
- Number one, your business must never run out of cash.
- Number two, YOU are to make sure that YOU don’t run out of cash.
- Number three, you must never forget rules one and two.
Cash is your business lifeblood and extremely important for the survival of any business. As the lifeblood that runs through the veins of your business, the moment cash stops flowing, your business starts dying.
So funding is an extremely important aspect of how any entrepreneur should look at his or her business.
Now let’s dive into how to source funds.
HOW DO YOU SOURCE FOR FUND?
Oftentimes, people mix up sources of funding with types of funding, but let’s clear the difference.
In terms of your sources of funding, there are two broad categories from where you can get funding for your business – the internal and the external source of income.
The internal aspect of funding your business is the easiest, quickest and simplest way of funding your business.
And here is a list to get started.
- YOUR PERSONAL SAVINGS
Another form is maybe your personal savings as an entrepreneur, and timing how these are your commitment and your belief for the business. Timing how you invest your own funds into the business whenever the business has a cash situation.
It includes the business owner’s investment for personal funds.
- SPONTANEOUS FINANCING
Spontaneous financing is a play on how you manage your cash inflows and your cash outflows.
If you think of your business as a cash pot, and you ensure that cash is always flowing in and out of your business, and you are able to manage how much cash comes in and how much of it goes out.
Looking at spontaneous financing is seeing how your management of the dynamics between how cash comes in and cash goes out – referred to as capital management.
- YOUR BUSINESS’ RETAINED EARNINGS
Many businesses would always go through good times and bad times, and bad times tend to stick clearly because people always remember the bad times from their difficult experiences.
But what we do with good times and the cash we handle is very instrumental to how you can find funding for your business on a go forward basis.
That means how you manage your retained earnings is seen in how much profit you retain in the business during the good old days in order for your business to continue to grow.
- SALES OF ASSETS
Another example is looking at your business as a whole and determining what you need and what you don’t need.
Oftentimes, with access to your business finance, you may accumulate certain assets that were important for your business at some point of growth but over time, those assets are no longer important.
You can then consider asset sales and disposals for generating cash that can help you scale your business.
EXTERNAL SOURCES OF INCOME
External sources of funding is access to cash outside of yourself and your company’s funds and assets, and consists of options such as private investments, sales of company’s shares, grants, loans from family, friends, or from the bank.
Here, there are a number of ways of sourcing funding, and I will put them in three broad categories – public concessionary type of financing; The Three Fs; and Debts.
- PUBLIC CONCESSIONARY
Public concessionary type financing, refers to soft loans, that often times have very low intrest rates that allows your businesss to pay back after a long period of time spanning several years.
They can be conpetitive and they do have certain requirements that must be met when sourcing.
Grants unlike pubic concessionary is money that you wouldnt have to pay back. There are a number of funding that is focused on solving problems in certain areas.
If your business is addressing those kinds of problems, you can probably tap into grant as a kind of financing.
- THE THREE Fs – Family, Friends and Fools
Another source is what we call in entrepreneurship: friends, families, and fools where you tap into funding from people who know you, believes in you, and who will want to support what you’re doing.
These categories are pools of capital that are not bringing down your nose in terms of interest and are focused type funding that you can tap into.
Loans are usually what people really think of when they think of debt, although loans can be a form of debt, but not all debts are loans, and there are various forms of debt outside of traditional banks for smaller businesses.
There are lending groups, microfinance banks, finance houses and that provide funding as loan with a stipulated interest.
You can look at leases if you want to, for example, get equipment for your business, you can look at factoring where you have clients that you’ve done something for me to pay you at some time in the future.
A company can also choose to sell shares or a stake in your company to raise capital from investors.
With equity, you get access to angel investors, venture capitalists, crowdfunding to raise capital for your business or to grow a project.Companies would normally do this with equity, and a good place to start this with friends and families as good sources of equity.
Please note that for the purpose of this article, and the focus on commonly accessible funding options for entrepreneurs, the list is not exhaustive. In subsequent editions, we can go in-depth and populate the list.
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An excerpt from the Interview with Samuel Nwanze.