By Ashley Preen
April 27, 2021
In these difficult times, a lot of people are turning to starting their own businesses. Success stories abound on LinkedIn about people who were furloughed, pivoted, and subsequently made a success of their new business idea.
Indeed, few things can be as exhilarating as starting a business. If done properly, it can be pretty rewarding.
When working as a sole proprietor, business funding, per se, doesn’t really come into it. Many freelancers start off with “bootstrapping” as their primary funding method, i.e., paying your own way and then using any subsequent profits to achieve more.
Indeed, this is more common than people might think. It isn’t, however, easy.
The tried and tested way to get a startup off the ground is through funding, whether this funding comes from a business loan, angel investors, grants, crowdfunding or VCs.
Here are some tips on how to fund a startup and how to get small business funding.
There are several options for funding a new business. Let’s look at the main ones.
This is the traditional method. It requires a thorough business plan. There can sometimes be a tremendous amount of paperwork involved.
One of the frustrations of new companies who seek bank loans is that it can sometimes happen that a bank will not take a risk on your business if they feel you don’t fit the profile of a secure investment, or if you don’t have enough collateral for the loan.
This is one of the reasons VC and angel funding can be so appealing. Venture Capitalism is all about taking risks. And many VCs will be willing to take a risk on a company that has shown its merit and whose business plan looks interesting and promises high returns.
We mentioned this briefly above. It comes from the phrase “to pull yourself up by the bootstraps”, which basically means to make something happen through your own efforts.
This is a safe bet because you don’t owe anyone anything. It can be a bit slow because the initial impetus of cash isn’t there. But it can also be more enjoyable because you’re under less pressure.
Before calling in the serious VC firms and doing a round of funding, people usually call their moms; or their uncles; or a mate; or just somebody who believes enough in a startup to give it that initial impetus to get it off the ground.
That’s angel investment.
This type of capital is not very high — usually tens of thousands of dollars; sometimes two hundred fifty grand — but it can be enough to get some prototypes out, create a buzz and then get the VCs interested.
Startups don’t usually go the crowdfunding route, although it is not unheard of. Some crowdfunded companies even became million-dollar companies.
Depending on the market you’re in, there might be government grants available for your project.
One famous company that received its funding from a government grant was the professional writers’ platform Reedsy. It was funded “from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 734046.”
Governments can offer grants for innovation, businesses that will improve the environment, projects that will improve a rundown area, and for many other projects that the government has an interest in forwarding.
We can help you work out if your startup is eligible for one of the many UK government grants available.
This is the one people normally think of when they think of funding — seed rounds, Series A, Series B, Series C, etc.
By the time VCs get involved, the startup is usually already somewhat underway.
To secure VC funding, you need a solid business plan and some figures to show for your efforts.
No matter which funding option you choose above, you are going to need a business plan. Even crowdfunding needs something like a “business plan”.
The style of the business plan might change depending on whether you’re hitting up a bank or going to VCs.
For VCs, the business plan must be solid and thorough. There can’t be any skimping on it. You can be as creative as you wish, but you need the essential elements in the plan. And the more data you can offer, the better.
A comprehensive business plan should contain:
The more money you are asking for, the better and more professional your business plan must be.
For VC funding, a pitch deck is often essential.
If you worked out your business plan thoroughly and expertly, you’ll know the answer to this question better than anyone else.
It’s true that investors can get excited and that you surpass your funding goals. Nobody ever complains when that happens.!
Starting a business is exciting. But it must be done intelligently or else you risk your business going under. Expert help is crucial. And maintaining proper accounts for any funds received is vital to stay in conformance with the applicable tax laws.
Pearl Accountants are a team of specialists that can assist you with all your accounting and taxation needs in one place. From the first contact through to completion, our aim is to keep you informed and provide a simple, affordable solution for all your financial needs.
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