This paper identifies various funding strategies to start up a business, such as venture capital, private equity, debt investment, and personal assets, their advantages and disadvantages.
The approximate amount I'll need to set up my own business (in this case, I've used a boutique). Suppose I want to open up a boutique, I would need to start-up capital. I would get my upfront investment from sources such as venture capital, private equity, or debt investment. For equity investment, I would allow interested parties to provide the capital in exchange for partial control of the business. Besides, I can get the starting capital from debt investment in that I would take loans from investors and get them interest income in return, also pay back the principal. In addition to that, I would get my starting capital from venture capital; this also happens in shares where I pay back the investor for his/her risk. Finally, my assets can be a great source of my starting capital; for example, I can take my home hangers for use at the boutique, which saves on cost.
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Since it's a small business, I would need approximately $500. My cash burn is roughly $400 and $100 for emerging issues such as repairs. At the end of the year, I expect to have made at least $3,600. If I'm to cover both the start-up costs and the 1 st years' cash burn, I'm supposed to have approximately $14,000.
Apart from the funding strategies I had discussed earlier, I can obtain this amount from taking a loan from banks or any other lending institution. There are advantages of taking a loan; you receive a large inflow of cash to start or expand your business. It provides you full control of your business, unlike equity investment, where shares are divided. There are two main disadvantages of taking a loan; these are; high repayment charges. It is also challenging to get a loan as many protocols are observed.
I can get my start-up amount using credit cards; just as personal credit cards, there are business credit cards where you can purchase business items using credit. Its limitation is that the payback amount is too high.
Another source of an upfront investment could be granted; these are money or items given for free by the government, institutions, or individuals. The advantage of this is that it's free; the firm does not expect anything in return. Obtaining your upfront investment from granting gives you full power to run your business as no shares are required. It also gives your business high chances of being promoted as it is already known by the government or the institution granting the business. Its primary disadvantage is that the process of applying is too long. Grants do not guarantee full responsibility for your business' needs as some of them only meet a specific need.
Moreover, I could get my starting capital from my savings. My savings make the whole process simpler as I do not have to consult anyone for the money. It's also easy as I can budget the amount I have. It gives you the power to own and control your business altogether. Financing your firm gives you the power to attract investors. Its demerits are that the amount of savings could be less to cater to all needs required to set up a business. The use of personal savings could make you go bankrupt hence putting up pressure on your family.
Another funding strategy I could opt for is Angel investors. Its merits are; it is easy to obtain financial support from them as their process is short, time-saving. Unlike loans from a bank, they do not involve personal belongings when funding. It also provides mentorship programs to their clients; hence many entrepreneurs opt for this kind of funding. The other undisputable advantage is that you pay back the exact amount you borrowed. Each client is also allowed to access its investor's contact. The demerits of this kind of financial boost is that; you give a portion of your business to the investors in exchange for the funds; this denies you full ownership of your business. Angel investors deal with a specific range of investments between £5,000 and £150,000. Finding a stable stakeholder takes way too long. Unlike any other financing corporation, it provides less operational support.
Another funding alternative could be from online financiers such as Tala, Branch, and I-pesa loans. Getting a loan from online financiers is easy as they get you a loan as fast as possible. Getting finance from online financiers guarantees you full control of your business as no shares are involved. They are known mostly for small-scale funding businesses. The problem associated with this is that it gives fewer funds that might not fund all business needs. It does not offer any other kind of service to its clients apart from funding. It encourages laziness among entrepreneurs as a minimum follow-up of the loan is made.
References
Jim Riley, Geoff, tutor2u, www.tutor2u.net.com (2018) Accessed 9/03/2021
Cher Zevala, Funding alternatives, www.startupnation.com Accessed 8/03/2021
