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Funding For Small Businesses: Get A Funding Plan Or Go Home

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Funding for small businesses seems to be the major challenge entrepreneurs speak about when we interview them.

An E-commerce company turned four years recently and was celebrating its anniversary with massive discounts on selected products. While still processing the company being a four-year-old company, I got a call from a friend trying to locate a business around my office area.

The company allows you to buy things from the UK and US and help with handling and shipping to Nigeria. I was quick to mention Mall for Africa, she said no, I mentioned shop to my door, no as well.  She mentioned the company had been around long before the two companies I had previously mentioned and I was wondering why I didn’t know them considering I often used the services of one of their competitors.

Different Ways Entrepreneurs Can Get Funding

You are not new to the statistics of new businesses failing within five years of being set up and there are several reasons why they fail. Poor planning, marketplace dynamics, shifting consumer preferences, poor execution, and chief among these reasons is poor funding.

I joke that an entrepreneur constantly has money problems. You need money among other things to get the business off the ground, you need money to keep going in bad times, you need money to fund the growth phase of the business, even when established, you need money to fund research and development to stay relevant. Sometimes you even need money to buy out the competition.

In other more business-friendly economies, there is a vibrant ecosystem that addresses the issues of funding for small businesses. From government-backed start-up loans, personal credit cards, crowdfunding, and angel investors, a business with a viable business proposition is almost guaranteed funding for every stage of its business growth.

There are two ways to go about getting your startup off the ground, you could write a business plan and get funding from family, friends, and fools. I would say you should forgo approaching any financial institution at this stage as you are better off winning the lottery than getting funding from them. The other approach I advocate is bootstrapping. Bootstrapping is simply taking the money and other resources you have and getting the business going.

Bootstrapping Explained

If the business vision is to open bookstores in every state capital nationwide, bootstrapping is starting with one small store in one state capital or leaner still, selling the books from the boot of your car or at educational conferences. Bootstrapping is swimming out to your ship rather than waiting for it to come to berth. It is the classic ready, fire, and aim approach to business. Every big business started small. Google, Apple, Microsoft all started in garages and not in fancy boardrooms with large amounts in funding.

While bootstrapping can get your business off the ground, it may not sustain the business. You have to have a funding plan. There are two approaches to funding; debt, and equity. There are arguments for and against each, but that’s not the point of this discussion. The point is, there is a need for you to know your business would need money and to start planning to meet this need long before the need arises.

If we take a cue from how successful startups have scaled and become thriving and profitable businesses, one would see these businesses get funding majorly via equity. They get investors in the early stages of their businesses. Early-stage being the time between inception and two years of running the business.

Who you get money from is almost as important as the money you are getting. But before you go pitch to a potential investor, here are a few things you should bear in mind.

Investors Invest In People Not Ideas

Billionaire Mark Cuban and Damon Dash founder of FUBU both of Shark Tank will tell you their investment mistakes were made when they put the idea ahead of the person. So when you stand in front of an investor, talk about the business but also talk about things you have personally achieved including your failures.

Skin In The Game

Investors want to know how much of your money and other resources you have committed to the business. The more you have at stake, the more comfortable they are with investing. Don’t ask anyone for money if you have not committed all of your own funds. If you believe in your business, you will commit all your funds to it and if you can’t, you have no right asking others to put theirs in it.

Business Not Idea

Unless you have had some successes behind you, built and sold businesses before, no one is going to invest in your idea. Investors put money in businesses that have sustainable economic value. They want to see that you are making profit already or at least have reasonable traction and your business is scalable.

Co-founders And Teams

Your chances of securing funding are higher when you have a co-founder and a credible team. Investors worry about business sustainability if you are a lone ranger carrying the weight of the building the business alone.

Clear Exit Plan

Investors want to put money in businesses, see the value of the funds they put in grow, pull it out, and start the process again. Have a clear exit plan which usually would be to sell off to another business or to trade as a public company. Run your business from day one expecting either as the end game.

The funding ecosystem is getting interesting in Nigeria and businesses are finding it increasingly easier to get funding. Government through several of its agencies, CBN and BOI most notably are making low-cost funds available.

There also are several corporate initiatives contributing to funding start-ups. Lagos Angel Network, VC4Africa, CCHub are good platforms that provide information about start-up funding.

While trying to get funding, continue to aggressively push the business along through available funds and resources because the further along you take the business along without external funding, the more value it commands at the negotiation table.

If you found this useful, please share it across social media. Let’s create visibility for your brand and put your business on the world map. Contact us today to make your brand the preferred choice for our audience of entrepreneurs and business leaders.

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