Monday, 10 February 2020

STARTUP & BUSINESS FINANCE


Entrepreneurship is a feasible career and a legitimate way to earn and build wealth.

Advocate entrepreneurship or starting a business and for many people the first thing asked is “Where is the money?” when appropriate questions could be focused on sweat equity “How can I start small, sell and build a business to a stage where investors chase after me?” or “How do I develop a viable pitch or write a business plan to source finance?” 

A reality voiced by countless entrepreneurs is that the person with a great idea, a credible pitch, business plan or network can always attract the money needed to start or at least expand. Thus, it is not prudent to procrastinate because of money. When an idea or dream is in your head and needs to come out, it will get developed regardless of initial financial situation. Hence, a feasible plan and a sales strategy are required; start selling on a small scale as your start-up strategy rather than waiting too long for money.

“Today, if you look at financial systems around the globe, more than half the population of the world - out of six billion people, more than three billion - do not qualify to take out a loan from a bank. This is a shame” (Muhammad Yunus)

Daymond John the founder of FUBU in America was rejected by 27 banks while seeking a loan, and advises that new founders need to concentrate on more unconventional sources of finance. After an interview with 80 African entrepreneurs we discovered none had started with a bank loan, although some tried they were rejected, and years later after prospering the banks were offering them expansion funds. Muhammad Yunus was inspired to start Grameen bank due to lack of conventional bank loans available in Bangladesh. Grameen’s micro-finance project successfully had higher repayment rates than the traditional banks. Much research shows that bootstrapping is usually an avenue for entrepreneurs to start small, because the traditional banks hardly lend money to new entrepreneurs. Thus, you may or may not get a conventional bank loan so combine your sourcing methods by trying unconventional avenues too.

“My dream was to set up my own e-commerce company. In 1999, I gathered 18 people in my apartment and spoke to them for two hours about my vision. Everyone put their money on the table, and that got us $60,000 to start Alibaba” (Jack Ma)

“Don’t go into debt unless it’s to make a long-term investment that will pay off in the future, like a home that would increase in time or an education that increases your earning power” (Elliot Weissbluth)

To start and sustain a profitable business; the initial requirements include passion, sweat equity, focus, marketing, networks, entrepreneurial skills, Brains, Energy and Time and not only Money. What this also implies is that if you don’t have a clear plan how to judiciously apply money, too much of it can be bad for you. If you are traveling to London from a far continent by road and sea without directions or a map, likely even if you get a million you would probably waste it and not get there and vice versa. Any source of finance does not want to throw money down the drain. You have to prove that you have considered all angles and you know what you are doing by starting operations, showing revenue figures, existing customers or client orders. Furthermore, evidence your commitment through researching your business sector to develop a strong business and career plan. These are the roadmap to how you will judiciously apply money, time, effort (sweat equity), in fact, all the factors of production to start and grow your business.

“I need to thank my friends and family. Believe you me, friends and family have been very, very supportive and I think people have believed in me especially people who are close to me because they’ve known me right from when I was young” (Abu Tafawa Balewa)

“Any self-respecting entrepreneur has borrowed money from their mother at some point” (Kevin Plank)

There are different avenues for business finance. Debt financing involves funds borrowed by a business to operate e.g. bank loans. While equity financing indicates raising capital through selling company shares e.g. investors. Also, funds can flow from unconventional sources like personal savings, friends and family, strangers, crowd funds additional to grants. Explore the following non conclusive (there are more) finance sources to start or grow your business: 
Table 8: Types of Funding

Debt Financing
Equity Financing
•   Family and Friends
•   Credit Card
•   Loan or Overdraft
•   Microfinance
•   Venture Capitalist
•   Angel Investors
•   Crowdfunding
•   Initial Public Offering (IPO)
Government & Others
Personal & Others
•   Special Loans
•   Incubators
•   Free Trade Zones (FTZ)
•   Grants
•   Savings, Friends & Family
•   Kick-starter
• Pre-Sales, Revenue and Contracts
•   Sponsorship

1)  Savings: Use your personal savings to start. Will Smith said “Whatever your dream is, every extra penny you have needs to be going to that”.
2)  Earnings: Sweat equity and revenue earned from any skill, trade, work, contract can be used to fund your business.
3)  Pre-sales: This involves planning and selling your products or services before the official release date. You could offer a discount to potential customers such as 10-50% if they can commit to buying in advance.
4)  Networks: Family and friends are principal sources for many start-up finance. So pitch your close network and gain from family or friends contributions. For instance, get everyone you know to contribute about 5% or 10% into raising your start-up capital. An entrepreneur we interviewed said regarding start-up finance “My dad helped, I had personal funding. Some of my friends brought in a bit of money. The money’s we borrowed were always from individuals never from the banks, and I think we were lucky there. One, the banks wouldn’t have given us money for an idea”.
5)  Partnership: Go into a partnership, form a strategic alliance or joint venture. For example, where profit share is agreed based on everyone’s investment and equity.
6)   Bank Lending or Overdraft: Many new entrepreneurs are unable to access bank loans, but some banks offer finance through an overdraft facility or credit card. For a secured or unsecured loan banks assess your cash turnover, collateral, credit history, character and capacity to repay, your personal investment into the business may also be considered.
7) Government-Enabled Loans: Countries worldwide have different programs to support business finance, but you have to research extensively to find them. These programs covered in this section may change so update your knowledge. First, research the Start-up Loans United Kingdom where Lee Boyce wrote in 2014 that a Start-up Loans director said the relevance of the scheme was due to enable a fact that with little capital many United Kingdom entrepreneurs, such as, Sir Philip Green, Sir Richard Branson, Mike Ashley of Sports Direct and so on were able to start and build up business empires. The Start Up Loans U.K is a government-funded scheme which also enables mentorship. The delivery partners assigned by the Start Up Loans Company assist applicants with their business plans, which are assessed and if approved subsequently funded by the Start Up Loans Company through a low-cost unsecured loan. The founder consequently benefits from business mentorship and other business support products. The loan is paid back through monthly instalments and matures within 5 years after a fixed interest rate of interest. Capital repayment holidays are possible but interest must be paid monthly. Second, America proposed The Jumpstart Our Business Start-ups Act or JOBS Act a law designed to encourage funding of United States small businesses through ease of various securities regulations. Third, there is NPower and existed a Small and Medium Enterprises Equity Investment Scheme (SMEEIS) in Nigeria a voluntary bank initiative designed for applicants to show a fantastically viable business plan and competency to undertake a business project. The fact is, there are many past and current schemes in different countries.  You will have to research and find the schemes still in existence and relevant to your business. During any finance arrangement, if board member support is offered, consider it because you could benefit from additional financial and non-financial advice. Don’t think of lose of control, because the agreement between you and any investor could be that they will give 100% control back as soon as you pay back what you have borrowed. Find out the different targeted types of finance available in your continent, region, community e.g. youth empowerment etc.   
8) Cooperative or Peer Lending: Some cooperatives, trader or peer-group associations in your community could lend you money at a cheaper rate than the banks. 
9)  Micro-Finance: This is a type of debt finance for a business. Every country has small firm’s loan schemes or micro-credit finance institutions, find them and research if their terms are beneficial for your business.
10) Private/EquityFinance: Business angels, Venture capitalists, Private equity, Private investors; represent those willing to invest and sponsor innovative and great ideas probably for an equity share of the business, or outright buy-out in some private equity cases. The finance sources mentioned here can fund large scale projects, assist take companies to IPO and contribute non-financial benefits of time and experience. They will enrich your board which is a welcome change for some because rather than thinking about loss of control, a percentage and share of a successful company is better than zero percent of nothing. 
11)  Crowdfunding: Another finance prospect is to raise cash through selling some of the share capital in your business. There are numerous crowdfunding platforms find them and evaluate if relevant to your business. Indiegogo or Kick-starter are examples  of platforms that have enabled the funding of creative projects in film, music, comics, video games, journalism, food and technology projects.
12) Inventory Financing: This is a line of credit or short-term loan offered by a supplier allowing your company to take products/inventory to sell with promise to pay at a future date.
13)  Loan and Grant Funding: Some grants are available for innovative projects or research and development (R&D). Many governments, regional bodies and regional banks, provide funds such as agricultural, capacity building loans or grants etc find them. Similarly, learn about international finance institutions such as the International Finance Corporation (IFC) a member of the world bank they advice, loan and fund large-scale projects e.g. infrastructure, mining and other industrial private sector projects.
14) Sponsorship:This involves pursuing and accessing financing in-cash, and sometimes in-kind (any personality, celebrity, industry or famous person) to support your person, project, event or organisation. The benefactor needs to show the sponsor that their support will result in positive publicity or commercial gains. The returns include more personal and company brand exposure, or awareness that encourages future buyers. Organisations sponsor arts, entertainment, sports or other non-profit social causes. 

Below is a comparison table showing the advantages and challenges of some secondary sources of funding. Create your own table like the one below incorporating your chosen sources of finance.

Table 9: Funding Type Comparison

Source
Advantages
Disadvantages
1
Crowdfunding
Founder benefits from additional feedback to improve product or test business feasibility
Founder discloses business idea  and information, such as, business plan, intellectual property/patents which may be copied
2
Debt
Director receives cash and retains full control of business operations 
Loan benefit is only finance, no other non-financial benefits are often included
3
Equity
Equity exchanged for finance and non-financial benefit of experienced directors on the board, enabling faster growth or working toward IPO
Enriched board members/ director disagreements, or loss of much equity may lead to founder loss of control or founder ousted from the business
4
Grant
No repayment, good sources for technology, innovation, Research & Development  projects
Grants are specialised and directly focused, requirements may be too stringent for your project e.g. science, professional researchers needed etc

Investigate different finance sources and find the best fit to start or grow in business. Aim for clarity concerning your business idea, develop a solid pitch, a feasible business and sales revenue plan to assist your journey and start with ‘the money at hand’ i.e. sweat equity and the minimum you can get. If you have to wait till you have “Enough money” you may never start, because there is never enough money.  Start trading small if you can’t raise all the money you want. Dream big, start small, grow big and wealthy.

Action Exercise
a)  Start saving towards funding your business today.
b)    Start a contribution scheme and get your friends and family to help you raise funds, sell them a realistic business idea. 
c)  Find out who related private investors, business angels and venture capitalists are and what they can do for you, develop a fantastic pitch, business and equity plan for investment.
d) There are corporative, peer-2-peer or micro-finance institutions in your region approach them about your requirements.
e)   Research information about grants or funding provisions for MSME’s.
f)    Find out related finance schemes and how they can benefit you.
g)   Join a crowd-funding site and raise funds or learn from the process.
h)   Develop and activate your personal finance plan

Excerpts from: How to Start Your Own Business: Entrepreneurship Career Edition 2 (Entrepreneurship Career Startup Edition Book 1)

#LEAD #ECC #Career #Employability #Intrapreneurship #Entrepreneurship #DrBeekaAcademy
All the best in your Finance or Funding Drive and Entrepreneurship Career!

Enrol Today and Build 21st Century Career Security Skills:

 Gain high quality ability learning with impact via the Dr Beeka Academy: complete the blogspot form here for more info.


2. How to Start Your Own Business: Entrepreneurship Career Edition 2 (Entrepreneurship Career Startup Edition Book 1)
3. Mu Koyi Sana’a (Hausa Entrepreneurship Book)

4. The Entrepreneurs Tool kit. The African Business Roundtable (ABR). 

5. A Practical Guide: How to Start and Grow Your Own Business. 

6. Effective Ways to Know, Manage or Motivate your Team to Attain High Profitability.


 DOCTORATE THESIS

7. Beeka, B. H (2015) Entrepreneurship as a Viable Career Choice for Nigerian Youth. Sheffield Business School, Sheffield Hallam University Doctor of Philosophy Thesis. 

JOURNALS 


SHEFFIELD DOCTORAL CONFERENCE: WON BEST PAPER 

10. Beeka, B. (2011) Entrepreneurship as a career choice: Opportunity recognition model from an emerging economy. In Lee, B and Palmer, N.J (Eds) Sheffield Doctoral Conference Proceedings, pp. 19-36. Sheffield: The University of Sheffield Management School Research Office. 

Twitter @BusinessBee
Disclaimer: Every possible effort has been made to ensure that the information contained in this article is accurate. While every precaution has been taken in the research but it is advised that names, places, narratives and quotes be independently confirmed by the reader. The publisher and the author cannot accept responsibility for any errors or omissions, however caused. The editor, publisher or author can accept no responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication.


at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)

Duality of Structure & Do Companies Grow Out of Thin Air?

What is the Duality of Structure & Do Companies Grow Out of Thin Air? Who starts companies? Who should start enterprises? Who ensur...