Six Sources of funds for an entrepreneur — When starting a business, capital is among the top essential things to have. Numerous sources are there for you to consider when searching for the best start-up funds sources. However, the first aspect you must look at and determine is the amount of money you need and the best time you need them.
Funding requirements for every business depend on the type and size of the company you want to establish. For example, if you’re going to create a processing business, you need huge funding, but for businesses like retail, a small capital will do the trick for you. In this article, we bring you six sources of funds for an entrepreneur you should check out.
What Are The Sources Of Funding?
People that want to grow their businesses usually look for funding sources. Funding, also known as financing, is the gathering or contributing money to fund a business, project, or need. You can look for short-term and long-term funding depending on your needs and circumstances.
Six Sources Of Funds For An Entrepreneur
Below are six sources of funds for an entrepreneur. Some sources in the list apply to startup entrepreneurs, while others are for fast-growing companies looking for ways to expand; nevertheless, there are options for everyone in the list, and it will help you approach inspiration for your next move.
1. The founders
This option means investing in your own company. For example, if you keep some savings aside or get your bonus, you can consider putting it into your company’s finance. Not paying yourself temporary wages, too, is an investment. If you are looking for sources of funding to use as a founder, it’s best to consider investing in your own company. The investment size depends on the number of zeros in your account. This strategy can make an outsider think you already know your game because nobody will risk investing in your business if you, the founder, aren’t willing to take risks.
2. Family and friends
Sometimes, families and friends are the best support when starting a business. Before looking for top-notch investors to invest in your company, you can start looking for funds within your family and friends network. These people are likely to invest in you because they already know your strengths and weaknesses, so as long as they feel your ideas will work, they will provide you with the funds. When you select this source, the money is typically used for startup costs and the pre-seed funding of the first round. The best benefit of this approach is that it is among the fastest cash acquisition methods. However, most times, the amount you receive through this method is relatively low and mostly paid back as a loan, or they will invest in a change for shares in the business.
3. Angels/informal
These groups of people already have some spare cash in their accounts and invest in startup companies to assist entrepreneurs in reaching their business goals. The startup amount for this category is usually $/£50,000. The advantage of this finance method is that aside from providing you with funds, you will also get experience and network opportunities in the sector.
4. Subsidies
Subsidies are usually provided to assist entrepreneurs with innovation or economic growth in a specific geographical area. Every region has its subsidies. These methods are beneficial for startups, so since they focus on specific geographical areas, it’s best to look for one that will fit your business. Before obtaining a subsidy, you must submit, justify your request, and have the justification audited.
5. Venture capital/private equity
Venture capital or private equity firms invest in startups or existing businesses. They usually have money to invest in companies within a specific period; their goal is to sell their shares to earn a profit after some years. The money range they usually provide is around $500,000 to 20 million dollars.
6. Revenue-based financing
This finance source involves an individual investing in a startup company to exchange 2-5% shares. The profit earned from revenues or mostly 2-3 times the investment funds. The benefit of this approach is that the interest payment depends on the revenue generated, meaning if there is no revenue, there won’t be a payment.
What is Business Finance?
The lifeline of all business is finance. It’s what determines the size, growth, and conduct of the business. You can’t start any business without financing except if the business doesn’t require capital. So it’s essential to understand everything about the financing concept. Business financing is the money used to establish a business. Money is necessary for buying goods and services.
Importance of Business Finance
To successfully bridge the gap between your productions and sales, you need capital. You can leverage business financing for many essential purposes, such as
1. Financial statements
Business finance lets you review your financial statements to know what’s in your pockets and whether you need more capital.
2. Strategic plans
With your business finance, you will create a strong strategic plan. Knowing the exact amount in your account will help you understand the best manner to approach your business goals. And if you want to expand your business, the financing will also help you know the amount you are supposed to invest. Lastly, a strategic plan will assist you in determining whether your business is meeting its target goals.
3. Finance
It’s normal while doing business to experience a shortage in cash flow; in this situation, business finance will help you weigh the pros and cons and understand your best finance option. Once you incorporate the information into your business, you will know the amount you must borrow and understand the best repayment schedule you can make.
4. Creating awareness
It’s fantastic to have your business idea and establish it, but no business can perform well without customers. So your business finance will help you make people aware of your company. And the best method to approach this is marketing and advertising; some marketing requires money, while some can be done for free. So it’s essential to budget a certain portion of funds from your business finance to keep sole for creating awareness for your business.
Best Ways To Spend Money As An Entrepreneur
Even though it’s impressive and rewarding to be in charge of finance, that also means you will be responsible for making difficult decisions. If you want your business to be successful, you must learn how to manage and know ways to spend your money appropriately. Before we proceed to our list of sources of funds for an entrepreneur, let’s look at some ways to spend money as an entrepreneur.
1. Prepare emergency funds
Things can happen in this life; for example, a lot of us never expected events like the COVID-19 pandemic to occur. By preparing emergency funds, you will have a chance of survival during any crisis, compared to a person that doesn’t have them. Even if you don’t have a penny for emergencies, it’s not too late to save now. Saving money is an important trait every entrepreneur should have. Aside from helping you in your business career, it will assist in saving you from other personal problems.
2. Hire good employees
Another best way to spend money as an entrepreneur is by hiring top-notch employees. Your employees are among the vital forces that will assist you in making profits. If a talented worker is seeking a job in your company and you know they have the potential to increase your company’s growth, it’s not wrong to spend a high amount of money to hire and pay them. But if you don’t have the money, let go; whenever you are ready to invest, numerous talents are out there for you to pouch. You can also consider spending money to train your existing workers; this is sometimes better than hiring a new employee; once your business starts generating revenue, you will understand that you have made the right decision.
3. Work based on budget
Lastly, another method of spending your money appropriately is by creating a reasonable budget and sticking to it. It’s not right to use rough shit for your expenses or be working based on intuitions. Instead, make a budget and ensure that both your and your workers are strictly following the budget. It’s best to let your employees know the exact amount you spend on the business, this will save you a lot of trouble, and it will keep your business and relationship with your workers healthy. Additionally, ensure to be clear to them and avoid confusion. Let the workers know that their boss is not a thrift spender and that their opinions have considerable value in the company.
Conclusion
In conclusion, there are many different sources of funds available for an entrepreneur. But before taking any step, it’s best to do deep research on the different sources before venturing into them. By researching, you will understand the best source that will suit your company’s situation, and it will increase the chances for your success.
Frequently Asked Questions
What is the best source of fund for business?
The best source of funds for your business is personal funds.
Are angels investors risky?
Yes, Angel investors can be quite risky. They can even get personally involved in the business.
Is Crowdfunding a good source of fund for businesses?
Yes, Crowdfunding can be a good source of funds for entrepreneurs.
References
https://www.growthink.com/content/5-most-common-funding-sources
https://www.nationwide.com/lc/resources/small-business/articles/business-funding-options
https://www.freshbooks.com/hub/finance/business-finance#:~:text=You%20use%20finance%20to%20purchase,to%20you%20and%20your%20business
https://www.freshbooks.com/hub/finance/business-finance#:~:text=You%20use%20finance%20to%20purchase,to%20you%20and%20your%20business
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