Cash flow is the life blood for any business, whether it is profit or non-profit organizations, big or small business. It allows the organization to invest in resources to further grow the organization.
However, the lack of green is the most common reason why most small businesses fail. It is rare to hear any business that failed because the owner was too busy to take care of the business.
Raising money capital for you business may be hard, but it is not impossible. Before we dwell into ways to raise capital, it is vital for you, as the business owner, to determine a financing strategy.
Critical factors to consider are: What values must be created to generate the positive cash flow? How the value will be created? What is required to start, acquire or expand the business? Break down the potential risk and return.
The following are the top 10 ways to raising capital for a small business.
i. Part-time income: When no substantial amount of capital is required in the initial start up, you can create a part time income stream to fund your business venture. While doing that, you utilize the spare time to study the nuts and bolts of the industry you intend to get involved in.
ii. Love money: This is the money that come from people with whom you have establish your credibility, people who have known you for long time, or people closest to you such as relatives and family. It is advisable to have every detail of the loan in written agreement regardless of your relationship with them.
iii. Personal loan: If you have good credit standing or valuable property, you can get a personal loan from financial institution. Most financial institution will require you to have a business plan with projected revenue and financing strategy.
iv. Angel investors: These are individuals with money but no time or experience to run a business. They are usually self-employed professionals such as physicians, lawyers and etc. If you can show them how to get a reasonable return on their money in a reasonable amount of time, they will usually say yes. However, angel investors are usually very unhappy when the return is not as much as they expected.
v. Joint Venture Partner: You can utilize other people’s resources, or even credibility to get angel investors. Otherwise you can get them to contribute to your efforts in creating value to the market you serve.
vi. Personal Savings: This is self-explanatory.
vii. Line of Credit: This is also referred to as the maximum loan a bank will allow the borrower for one-year period. Most commonly used to seasonal financing such as inventory built-up and receivable financing. It could be unsecured but sometimes bank may require a pledge of inventory, receivables, equipment, or other acceptable assets.
viii. Private placement: This is a source of equity capital for private company that has decided not to go public. It is commonly used by company to raise a specific amount of capital in a short period of time. The company will offers stock to a few private investors, rather than announcing public offering.
ix. Capital reinvestment: Start small. Monitor the cash inflow and outflow of your organization very carefully. Instead of writing a paycheck to yourself to satisfy your instant gratification, reinvest the earned income into the business operation to generate more cash flow.
x. Public Offering: Commonly referred to as IPO, or Initial Public Offering. Company raises capital through federally registered and underwritten sales of the company’s shares. It is advisable for you to consult with lawyers and accountants with the recent regulations and statues that governs IPO.
