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Money is the bloodline of any business. Lack of funding turns out to be one of the common reasons for failing startups. Dig in the article below to find why personal and professional status matter in startup funding
Operating a business comes with expenses. Most entrepreneurs don’t have that kind of money sitting around ready for use. As such, they must decide how they’re going to finance their operations. They can tighten up their personal and professional finances to free up cash, host a fundraising event, create a crowdfunding campaign, work with investors, or take out a loan. If you’re presently in this scenario, you must consider various factors to make an informed decision.
1. Personal And Business Financial Status
Before investing your time, money, and resources into acquiring capital for your business, you should have a clear understanding of your financial status. From a personal and professional standpoint, do you have the income or revenue to cover company expenses?
If not, can you generate these funds without going into debt? If you need a loan or line of credit, are you in a financial position to get approved for something affordable and repay it responsibly? Let’s take a closer look at how your personal and business financial status plays a role in startup funding options.
Bootstrapping, a term you may have heard a lot about if you’re a Seth Godin or Jason Fried/37signals fan, is the safest method of financing your business. In a nutshell, it’s using your income and savings to cover business expenses. This funding option is popular among entrepreneurs because it poses the fewest risks and financial liabilities.
When implementing the bootstrapping method, entrepreneurs have to get serious about their finances. Finding extra cash to fund a business may require you to cut unnecessary spending, debt reduction, or identifying savings on everyday expenses. So, assess your personal and business finances to determine whether these options will accumulate the money you need.
3. Loans And Lines of Credit
For those opting to borrow money, the evaluation of your financial status is a must. You need to know whether you have the credit score and history to get an affordable loan or line of credit. You also need to assess whether you have the means to repay the funds (whether your business makes it or not).
New businesses don’t have a credit status. Ultimately, to acquire a loan or line of credit, lenders will review your personal financial history. If you don’t have a high credit score or satisfactory history, obtaining a loan becomes more challenging. Consequently, you’ll need to use products like starter loans online to boost your score and improve your credit before putting in an application.
Another factor to consider before applying for a loan or line of credit is your ability to repay. While the hope is that your business will generate profits to cover monthly loan payments, there is no guarantee. In this instance, you’ll have to have another means to keep up with your obligation. Assessing your personal and professional finances can assist you in determining where the loan payments will come from.
Whether you plan to find a partner or offer investors a stake in your company, your personal and professional status matters. Anyone willing to invest their time, money, and resources into your business wants to know the likelihood of reaping a return. So you’ll need to make this clear in your proposal. Although market research and the quality of a product or service are considered, financial history and projections are also determining factors for investors.
Think about it. Why would you want to invest in a business with no idea of how they manage their finances or how they intend to generate revenue? Winning their financial investment ultimately requires you to have a clear record of where you are presently and where you plan to be in the future. These records and projections must be factual and backed by accurate research and reports.
There’s nothing wrong with needing assistance to fund your startup. Many entrepreneurs don’t have the means to do it alone. Before deciding which funding method is ideal for you, business owners must have an accurate understanding of their personal and professional status. As you can see, it’s the key element in each of these fund-raising concepts.
5. Friends and Family
It’s easy to understand why many entrepreneurs turn to friends and family for support. You may not have personal cash on hand to fund a brilliant idea. Bank loans can be tough, especially in challenging economic times. Investors can be extremely picky and particular. If you’re facing these challenges, it may be a good idea to seek support from friends and family.
In some ways, this line of thinking is logical and rational. People in your inner circle are familiar with your character and expertise. They know your professional experience and trust your ability to realize your dreams. They have no questions about your dedication, reliability, and work ethic. These are exactly the people who should ‘have your back.’
In many families, this kind of support is second nature. Parents give their kids money to start a venture. Brothers and sisters offer financial help to get things off the ground. Lending a hand is considered natural. Some relatives may feel offended if they are not asked to lend money or invest in a venture.
There’s nothing inherently wrong with this. However, as you may know, this kind of supportive environment is not universal.
In other families, there may be history, sibling rivalry, or competitive factors in the way. Many entrepreneurs find that involving families in funding is not a viable option. Why is this the case?
Every family has its own culture, rules, and taboos. Asking for money, even for a validated business venture, may not be welcome. Perhaps there is a reason for this – either amongst the people involved or in the family history. A long-gone uncle may have not repaid a debt. Your mother’s sister might have gambled the money away. These kinds of family archives come to life when money is the topic on the table.
What is right for funding your business? Look at the dynamics of your family. Is there a difference in power? Does one sibling have a lot more resources than another? Is there a lingering mystery or aversion to the topic of funding?
If you sense that asking for a gift, loan, or investment would bring problems—listen to your intuition.
Similar dynamics can come to play amongst friends. It may relate to personal status, standards, or professional status. Some friends have an unspoken rule about lending money to each other. The rule is: “Of course, I can lend you the money! I’m so glad you trust me enough to ask.”
Other friends have the opposite rule in place. The unspoken guideline is, “I’m not a bank. Please don’t ask. Don’t even think of asking!”
Think about your friends and pay attention to your gut sense. You’ll find it is often the most accurate barometer for sensing the ‘rightness’ or ‘wrongness’ of involving family and friends in your business venture.
6. Crowdfunding Campaigns
In recent years, there has been a radical increase in crowdfunding. Mostly, we hear about eye-popping campaigns. “This Indiegogo campaign raised $200,000 in the first 48 hours.” “This “Kickstarter campaign raised $400,000 in the first week.”
Many entrepreneurs are using crowdfunding to get their business ideas off the ground.
There are a few things to consider with crowdfunding campaigns. Creating, managing, and completing a campaign takes a lot of effort, money, and time. It requires strategic planning, project management, marketing savvy, and great communication skills. Many entrepreneurs don’t realize that running a crowdfunding campaign is a lot like starting a separate business.
You’ll need to plan every detail down to crossing the ‘t’s’ and dotting the ‘i’s.’ You will need to have a master plan, a website, press releases, compelling copy, graphic displays, and a complete timeline to deliver on your promise.
What many people do not realize is this: many crowdfunding campaigns do not work the first time around. Often, after ‘winging it’ on the first go, entrepreneurs turn to larger crowdfunding marketing companies for the second round.
These companies are not free or cheap. The big marketing companies often cost $25,000 or more for comprehensive campaigns. They will transform your idea, create a new logo, look, and tagline. They will conduct market research, track industry trends, and orient your product to appeal to your target market.
In short, you’ll be paying for the campaign – but you won’t have a guaranteed success.
Additionally, marketing experts find that software is the least successful category for crowdfunding campaigns. If your business is centered on an app or software, keep this advice in mind. You could save yourself a great deal of energy, money, and time.
If you do decide to use crowdfunding, take a professional approach. Create a business plan and outline your expenses. Hire expert help for the parts that are not your strengths such as project management, graphics, or copywriting.
Use your personal and professional status to formal and professional. Be upfront about the risks and rewards of your business venture. Your professional approach is the best way to build rapport and trust in securing money for your business venture.
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