10 ways to take money into your business
Here are ten different ways to take money into your business. These methods cover all types of businesses from a mobile hairdresser to a tech start-up so get ready I'm going to break it down. Just FYI, it seems mad to say this but I have personal experience in my business of every single one of these. You are so welcome.
1: Savings (back of the sofa)
As I say time and time again the first port of call for money when starting a business should be your own savings, whatever Gold4cash will give you for your ex-husband's wedding ring, whatever you can find down the back of the sofa with the dog hairs and the hula hoops. Why?
You are telling your subconscious mind that you are serious and you are retaining the purity of the project by not getting distracted taking money in from other people.
Also any institution or person who would put money in at this stage would give you terrifically bad value.
People do say to me 'I don't want to put my own money in, it feels too risky' and this is always a red flag. I have never felt nervous early stage to invest in myself, if you aren't really feeling like it's going to work maybe go back a step and review.
2: Soft loans (Auntie Violet)
Soft loans are when we go to someone we already know and make an arrangement to borrow money and pay it back usually at an interest rate lower that a commercial lender would offer.
My tips here are to make sure your enthusiasm for the offer doesn't doesn't stop you checking that the lender understands the arrangement fully (I have seen more than once problems with older family members nodding and smiling and saying yes yes then asking for their money back before the repayment period has started because they didn't really understand the terms)
Make sure you write down the terms on an envelope or email and date it and give them a copy, make sure it is clear. Finally, be super grateful to be in a position to have someone in your life who can back your dream on favourable terms is a privilege and moving an early stage project forward with this is harder and scarier.
3: Grants (Free money from gov., some strings attached)
Each year the government makes various pots of free money available for projects that provide social benefit.. Benefit that depending on your political persuasion you could argue that they should be sorting out themselves. Sounds amazing but it it comes with several strings.
First of all to make a successful application for a grant you need to be committed, they aren't easy and I have given up many times.
Second of all it's really hard to find out about them, .Gov has a directory with a search feature but I always suspect there is one perfect one out there if I only I knew about it.
Thirdly they often come with things like institutional mentoring that committed entrepreneurs don't want so sometimes you have to suck it up.
Finally if you are a social enterprise or not-for-profit it is a lot easier to get a grant than if you are a private business so manage your expectations accordingly.
NB: These grants are not repayable but you do have to spend the money in the way you say you will on your application
4: Crowdfunding (Kickstarter / Crowdfunder)
Reward-based crowdfunding is a way that projects can use platforms like Crowdfunder and Kickstarter to take in money (averagely £15k or under) in return for future product or 'rewards'. I use the word 'project' as you don't have to be a registered business to get money this way and in fact community organisations or not-for-profits arguably find these platforms a better fit.
As with all kinds of crowdfunding I think the concept is AMAZING and wish it was around in my early days, it has truly democratised money raising HOWEVER it is noisy and to be heard and have a smooth run to your target you do need to be strategic.
Building an audience on social media or a mailing list that is engaged really helps and understanding the power of story telling on the platforms is my other biggest tip. I'd like a Miele dishwasher with a cutlery rack, technically I could set up a crowdfunding campaign to get you to pay for that, would you pay £10 towards my dishwasher (I have a perfectly good Curry's one but I fancy a Miele) of course the answer if no. BUT if I have a track record of working on environmental projects and have spent my own savings creating a range of earth friendly cleaning products and want to get them into Sainbsurys what then? REALWORKer Mahira Kalim of We Are Spruce knocked her campaign out of the park - take a look.
5: Government Loans (Startup / Bounceback)
Government-backed loans are accessed through banks as if you were taking a personal loan (the money is loaned to you not your business as a separate entity) and you are taking responsibility to repay the money whether or not the business does well enough to support the repayments.
That's the bad part, the good part is that typically you are more likely to get a yes than when applying for a bank loan, the terms will be more favourable and the spoonful of sugar that makes the medicine go down is that in the event that your business doesn't make it and you are re-negotiating repayment the whole conversation it a LOT softer. In fact if you were unable to repay a standard bank loan there isn't much of a conversation to be had except 'expect to hear from a collection agency (the nice way of saying bailiffs). Government loans are never aggressively collected in this way so you can potentially repay £1 a week for the rest of your life.
I am not recommending you do that (or in fact recommending anything as I am a founder speaking from experience and not a financial advisor) I'm just telling you that when your business goes bust and you are staring at the wall like a stunned mullet thinking 'what happened?' it's a lot easier to come back from that place if you aren't facing the threat of your house being taken off you by Lloyds.
6: Bank Loans (aka Bank Groans) inc invoice factoring
When I started my first business 15 years ago I can't tell you how many people told me that banks would lend money to a limited company. I have never seen it happen, it has always been the case in my career that to get money out of a bank the founder has to take the loan and secure it (in my case with my sister's house... NEVER DO THAT) If you know me you'll know I rarely swear but seriously back in those pre-crowd funding days trying to get banks to lend me money was the biggest ball-ache of my life and the consequences of a loan we eventually took on embarrassingly bad terms was a major factor in the demise of my first business (a story for another day).
A new approach to business banking from companies like Tide and Starling is promising an end to stories like mine but I'm not sure about their approach to lending. I wonder if bank loans as a funding option should just be taken off the list now? If you've had a easy to access / fair loan for your business in its early days tell us and I'll send you a prize.
7: Crowdfunding for equity
Crowdfunding for equity came along just in time for my second startup and I ran a successful campaign on Crowdcube and consider myself an early adopter. I went on to work with multiple other businesses on their campaigns and have found the whole process great for a heap of reasons.
The main one is that the men in grey suits who always seemed to be standing between me and the money in my first business are taken out of the equation with crowdfunding and I felt like I was driving and that the process was democratic.
To be ready to run a campaign you have to have reached certain milestones:
1: You need a limited company up and running with a product or service on sale to happy customers.
2: You need a relatively simple current share ownership and company structure (eg it's a new company with 3 shareholders not an old company that has gone bust, changed its offer has a load of director's loans with five different share holders agreements)
3: You need a brand identity that can connect with a wide audience
This all sounds great because it is but remember if you raise money this way through Crowdcube or Seeders the two main UK equity crowdfunding platforms who recently announced they are merging, if you raise money this way it's in return for equity, shares in your business so people you don't know very well with partly own your business.
That is something you have to take seriously and be ready for as it opens you up to a new level of legal responsibilities with regard to your commercial behaviour. Also people only invest this way on the understanding that in maybe 3-5 years time there will be an opportunity for them to get their money back and more, so you have to have an exit strategy.
Finally there is also a thing called crowd loans now through platforms like Funding Circle I'll write that up another time, I have invested money this way but never used it to fund a business so I need to find out more but the concept I really like.
8: Angel Investment
With crowdfunding for equity you take small amounts of money from lots of people, with angel investment you take a larger amount of money from an individual. The money is in return for shares in (part ownership of) your business and there are advantages and disadvantages to consider with this method.
On the plus side if you are lucky and clever you could find an investor who believes in your mission, who shares values and brings industry experience to the project. Also, with the right person, the process can be quicker and lighter than running a Crowdfunding campaign. If you hit the targets you set out together an angel investor is very likely to join in further investment rounds which really helps to get things going when the time comes to grow the business.
The down side is that it's very hard to work out if angel investors are a good match as they tend to all be really nice at the beginning when you are working out the deal. The other thing is that they could be a great investor until the business hits problems and then they might apply pressure that makes it difficult to move forward. Novice founders also often experience perceived power differential between them and the angel with the deep pockets. We have a tendency to feel too grateful and it takes quite a mature head to factor that in and set that relationship off on the right track.
Finding angel investors is down to networking, being visible in your industry so you are available for approaches, using Linkedin and also there are some organised events where founders meet Angel Investors, I have found investors this way once but been disillusioned with quite a few of them so that's a matter for you to decide.
9: Joint Venture
A JV is an arrangement that is used when your business relies on a relationship with one other company e.g. you make beer and buy it from a brewery and there is only one brewery in the UK who can make it the way you need it, or your business relies on an app that is constantly needing updating and you work side by side with a tech company.
Conversations about a JV can be instigated from either side, if the larger party initiate it early that's a good sign that they see potential in what you are doing. Usually you wouldn't start talking about a JV until you have an established working relationship and the business is hitting targets.
JVs can be structured in lots of different ways and you can get legal help to do that but the main thing to realise is that, just like with any legal arrangement, it only really holds together if both parties' interests are served so the idea that you negotiate hard and get something that is better for you but not so good for them is what you might see on TV but doesn't really work in the real world.
Typically the benefits of a decent JV with a manufacturer say are that they can stabilise and de-risk your business by offering you a raft of cheap or free services that you would otherwise have to sort out for yourself like supply chain, inventory, delivery etc.
I personally think that TV shows have glamorised the role of the angel investor to the point of fetishisation and a decent JV can be a much more appropriate and manageable way to scale.
10: Venture Capital
Venture capital funding needs the least explanation because by the time your business is up and running and looking promising enough for this to be an option you will already know what it is.
In a nutshell VC firms are businesses that manage pots of money on behalf of rich people, and themselves, and make calculated investment in businesses that they can exit from at a profit (private equity financing of high-growth businesses). Typically they negotiate hard and the process is quite structured. There are female VCs, and the occasional all female VC firm, but as an industry it's still quite old school and to be approached with caution.
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