Financing Your New Business

Many people see funding as their biggest stumbling block on their journey of entrepreneurship. In this section, we’ll look at various options with regards to funding your business.

In this introduction, I would like to share the following tips with you.

Firstly, if you can possibly avoid it, don't borrow money. Obviously, many business paths require funding, such as buying a franchise or buying an existing business. These have a lower risk association because they are generally turnkey operations, meaning that you will start to earn money almost immediately. When you are starting a business from scratch however, making money is often much more difficult in practice than in theory. When you owe money to a lender it puts immense pressure on your business, and it is often the lender who forces you to shut down the business prematurely. If you can start your business without borrowed money it can help to prolong your opportunity to buy the time you require to succeed.

Please remember that personal overdrafts and credit cards are even more risky than borrowing start-up capital. Avoid them at all costs.

If you need small amounts of start-up capital to buy equipment or stock for instance, rather rely on personal savings or friends and family. I know this might sound strange, but 80 percent of businesses in the United States are funded by personal savings and friends and family, and it is very similar here in South Africa. The risk is lower this way, providing you keep the lender fully updated with the progress of your business.

If you do need to borrow larger sums of money, then consider your options carefully. Don't just go for the first institution that offers you funding. There is often more than one option, and you should look for the one with lower risk associated with it, as well as preferable payment terms and interest rates.

Lastly, most institutions frown on funding personal salaries and expenses. Try to cover these yourself as much as possible. Also, try and reduce your monthly costs in every way possible. Starting a business while you have personal overdrafts and credit card debts is unwise. Banks can become very sticky when it comes to personal finance facilities, especially when they don’t see regular income coming in. Don't make a mistake here, because cutting down in the short term is far less painful than losing it all

Brian Walsh