If you are seeking extra capital to run your business, you do not always need to seek external sources. There could be enough money inside your business to fund what you need.
Before you start the hunt for cash or approach the bank for funding, it’s essential you accurately assess the amount you need.
If you need $120,000 to fund a project, are there $10,000 worth of savings you could find in your business every month for 12 months? Possibly you could, even short term;
The keys to assessing your requirements are accuracy and honesty:
Before you proceed
Remember, the lowest risk option for raising capital is to simply find what you need from your own savings or assets.
Securing investment from an investor will probably require you to relinquish equity (shares) in your business, along with a degree of control. Borrowing money from a lender will see you charged interest – which is essentially money down the drain as far as your business is concerned.
If possible, assess whether you can raise capital by selling unwanted assets or through restructuring your costs and saving over time to achieve your capital goals.
These are some of the most common, untapped, sources of capital for savvy small business owners:
Inventory and other assets
Having too much inventory on hand can be detrimental to your business – there are storage costs and deterioration to name a few issues. It can also mean you’re asking where all your cash is going.
If your inventory isn’t turning over fast enough and is becoming obsolete, try to clear it out, reduce your orders, and build up your cash reserves.
Consider reducing your inventory levels, by using just in time ordering. You will find suppliers are getting better and better at delivering smaller quantities just when you need it. You do need to balance the possibility of volume discounts. If you have $240,000 worth of inventory, and can survive with only half that amount, then you have uncovered the $120,000 you needed.
Tighten cash cycles
If you collect what is owed to you faster, then you end up paying less interest costs (if you needed to fund it), or receive additional interest if it’s money in the bank.
Here are our suggestions to boost your cash cycles:
Bootstrapping is a popular method for growing a business with minimal costs. You can harness free resources, call in favours from similar businesses, borrow equipment, and use other creative means to build your business without breaking the bank.
It’s about making smart and economic decisions to generate cash flow without acquiring too many costs.
Here are some suggestions:
Grants and incentives
There is a wide variety of Government grants and incentives available to help eligible small businesses grow in Canada.
Possibly there are existing staff members that would be interested in investing in your business as an ‘angel investor’.
Angel investors typically pick investment opportunities in their fields of expertise so they can apply their experience to helping the business succeed, but the benefit of existing staff is that they know the business and the opportunity.
In return for capital investment and their expertise, angel investors typically take equity in the business and expect a healthy short term ROI.
Crowd funding is the newest trend in raising capital and is most appropriate for high risk creative and artistic projects that wouldn’t typically receive funding from a bank, angel investor or venture capital firm.
Instead of seeking capital in its entirety from one source, crowd funding sees businesses seek capital in small amounts online from as many investors as they can.
Crowd funding websites post online pitches from their member businesses that offer rewards, discounts and special privileges (such as receiving a pre-release or beta version of a product) in return for small investments.
Each crowd funding website operates to different rules, so make sure you research your options carefully before choosing one as a platform to seek investment.