There are many people and organizations with cash on hand that is willing to invest in small businesses; many entrepreneurs often turn to deep-pocketed friends or family members to do so. The terms you can set with prospective investors, as well as the cash that they are willing to provide upfront, will likely depend upon your small business’s current financial straits and its potential to generate profits. Nonetheless, ensure you understand the terms and develop a written, legally binding agreement to whatever your investors and your company settle upon. This will protect both you as well as your investors in the long run.
Finally, ensure that you consult with your accountant prior to seeking out investors. Certain types of loans, especially those that are interest-free, may expose your business to additional tax liabilities in the short term.
A relatively new and innovative way to obtain funds for your business in the early days is through crowdfunding. Crowdfunding is simply the process of funding a venture by raising money through a very large group of investors. While people still conduct crowdfunding through advertisements and mail, the most popular means to do so today are via the Internet.
Crowdfunding offers small businesses and entrepreneurs several advantages over banks and traditional investors. First, the aforementioned platforms can help to generate significant amounts of capital in a short amount of time. Additionally, a particularly imaginative or otherwise effective crowdfunding campaign may generate new customers, as well as cash; investors who are enthusiastic about your company’s new products or services may be the first ones lining up to buy them once the cash starts flowing.
However, an entrepreneur intending to raise money through crowdfunding will have to develop an effective pitch. If you intend to get a group of total strangers to invest in an unproven company, it better be good. As one highly successful entrepreneur put it, “if the crowdfunding investors don’t believe it will work, they won’t back it.”
Venture capitalists are investors who put in a considerable amount of money in exchange for equity in the business and get returns when the business goes public or is acquired by another company. Venture capitalists are all about the money and only invest in businesses that have the potential of providing good returns on their investment.
No matter how hard you work, or how disciplined you are, your new business will not survive if it experiences serious cash flow problems early on. One of the best ways to insulate your company from cash flow issues is to obtain a line of credit. There are numerous options to do so, each with its own advantages and disadvantages. As you prepare to embark on a new business venture, ensure you research all of them. You are ready to secure your cash flows, and your company’s viability, in the challenging days ahead.