A practical step-by-step approach to securing capital for your business
Thursday 13th October 2011 | 10.30pm-5.30pm
Queen Mary Innovation centre in London
by PAUL GRANT | www.thefundinggame.co.uk
In 80% of cases an entrepreneur is just not ready to seek investment capital. Why? There is just too much risk in the business still. How do you reduce that risk without pitching for bank loans or investment from angels and VCs?
Seems like a catch 22 situation. Many entrepreneurs give up despite having a viable idea. There is however always a way to grow a good idea if the team are skilled and action focused. There are many approaches to launch a business on limited resources but here are six quick alternatives to explore:
1 – Family and Friends
Pretty obvious, but worth mentioning. Do not be shy in asking for the easiest money there is. But there is always a price. It could be that you will get a loan from a family member or friend or investment. Whatever it is make sure you get it in writing and be prepared for it to impact the relationship. You also need to be honest with them about the risks involved. Be sure they will not be devastated with the loss. You do not want to live with that pressure every day. Overall though it may be just the start you need to get going.
2 – Vendor Funding
This is where you effectively use your supplier’s cash as an interest free loan. To start with you should at least get a 30 day payment period. If your business model allows you to receive cash from sales you make up front, use that to the hilt. Extend that supplier payment period to 90 days if you can. In the meantime, as long as you are profitable you can use the cash to create more sales and still be able to pay the supplier back in time. Be straight with the supplier though, they may have to wait longer but if you stick to your word you will get no problems.
3 – Invoice discounting
If however your business model does not allow this and you are the one waiting to get paid 90 days later you can sell an invoice to an ‘[[invoice discounting]]’ company. This will mean you will get the money within the week. Depending on the credit worthiness of your customer you could pay approx 10- 20% of the invoice value. Better still usemarketinvoice.com and [[invoice auction|open bidding]] on the invoice to get the best deal possible with the minimum of red tape.
4 – Corporate credit cards
Not to be at all confused with your own credit cards which I would not recommend using. Whatever bank you are with, get a corporate credit card. Use it as frequently as needed up to the initial small limit and always pay it back promptly. Ask for gradual increases in the limit. Continue to always pay on time. Within a relatively short period of time you can gain quite a substantial corporate credit limit. You can now use this to create more sales and proof of concept.
Step 5 – Asset finance.
In bootstrapping mode the last thing you need are big capital outlay. Do you need equipment or vehicles to start-up or grow the small business? If so look at ways to avoid having the capital tied up in a depreciating asset. Instead keep outlay low and small by looking at renting, failing that leasing and then (HP) hire purchase. Yes in the long run it works out more expensive but in the short term you can use the cash to generate more profit and again developing proof of concept.
Step 6 – Trade shares for services
What is stopping you getting started? Do you need £50k to pay software developer? Do you need £70k to tool up for new product? Most entrepreneurs would go out and try and raise that capital. Why not go straight to the developer or manufacturer and offer them a 5-10% stake in return rather than cash, or perhaps a mix of both. It would not only be quicker than seeking an angel investor for this type of deal but also much cheaper in terms of equity released. There are many developers, website designers and yes even UK based manufactures who will do this if the idea and team are credible.
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