Funding and investment are two different concepts. This blog mainly focuses on funding readiness but we will touch base on types of investments before we go into detail about it on our next blog post.
Funding refers to the financial assistance you can get for your business in a form of a loan, grant, donations and other resources.
Investment is the financial assistance you will receive with the expectation of the investor generating a profit through your business overtime.
Let’s look at the various types of funding:
- Grant
- Debt
- Equity
1.1. With a grant, you don’t have to pay the money back but you will constantly need to report on how you are utilising the funds within your business. Accountability is key.
1.2. Second one is debt. Debt can be in a form of a loan or credit facility. This can help you get quick access to cash, can give you flexibility and help build a good credit profile. However, if your financial plan is not in check you may be at risk of negative cash flow issues and the inability to pay back the money on time. A financial plan is part of your business plan, so please remember that planning is important.
1.3. Lastly, equity. Equity is when the funder gets a percentage of your business for the money they give you. The good side is that you don’t have to repay the money, you have access to a mentor and adviser, and you don’t have to carry the risk of running a business alone. However, you will lose control of your business and you might need to deal with the pressure of business growth even when things are not going well.
Now let’s look at the various types of investors:
- Angel investors: these are typically wealthy people who invest in startups in exchange for equity. Remember equity is a piece or percentage of your business.
- Secondly, Venture Capitalists: these are professional investors or firms that provide investment and also look for businesses with rapid growth and high returns.
- Crowdfunding platforms which are websites where you can upload information about your business and people can donate to make your dreams come true.
- Lastly, Private equity investors: these ones will buy companies that are already mature. They will restructure and sell them again after making a profit.
There are more types of investors but we will stick to these three for now.
SO HOW DO YOU GET YOUR BUSINESS READY FOR FUNDING
- Have a clear business plan that demonstrates scalability, unique value proposition, market research, and revenue model.
- Have detailed current and projected financial projections and a clear explanation of funding requirements.
- Make sure you comply: is your business registered and do you have all the necessary licenses and permits.
- Ensure you have an experienced team of employees with a track record of success as well as a clear operational plan that supports business growth.
- Have a clear marketing plan: how are you going to attract customers and generate sales.
- Risk management: how are you going to manage risks and be prepared for potential setbacks.
The most important question a funder will ask you is what you’re going to use the money for. So be clear about your financial plan and requirements before looking for assistance.
This is a simple guideline for you. Email info@marblerose.co.za to get a comprehensive breakdown and further assistance.
