Written by: Johann Barnard
Funding your new business
Funding your new business is probably one of the biggest headaches you’re likely to encounter. If you’re in the service industry the capital required may be smaller than a retail business, but in either event you’re going to have startup costs you have to cover in one way or the other.
Steven Cohen, managing director at Sage Pastel Accounting, says that while the commercial banks are often the first port of call they are not the only option available. He has the following suggestions:
This requires a fair degree of planning to start saving before you venture out on your own. But it requires an equal amount of planning once you’ve started up to ensure you are managing your cash flow. Taking this route is obviously easier if you don’t have high capital or equipment costs.
The benefit to self-funding is you won’t need to dilute your ownership and control of your business, you won’t need to repay loans with heavy interest. Most importantly, you will build a lean business right from the start.
2. Family, friends and fools
An easy route to funding is to take loans with people you know personally who believe in you and your business idea. The benefit is that this would be considered a ‘friendly’ loan that offers you easier repayment terms, and lower interest than a commercial bank would offer.
The downside is you may lose the confidence of these friendly funders if your business does not meet your expectations.
3. Government grants and funding
This route is open to qualifying enterprises – generally majority black and women-owned business, although not exclusively. This process can be slow and frustrating, but remains an option worth considering. These funds are mostly available through the Department of Trade and Industry, with DTI Incentives offering a summary of some of the financial assistance programmes available.
4. Enterprise development
Another option for majority black-owned businesses is to tap into enterprise development programmes that large corporations undertake as part of their BEE obligations. This component has received a new focus under the latest revisions to the BBBEE laws and provides funding, mentoring and other forms of assistance to emerging firms.
5. Ask the crowd for help
One of the innovations that the Internet has brought to entrepreneurs is the concept of crowd funding: individuals who believe in the promise of a product or service commit their own money in return for receiving the product upon release. This concept has not yet been established with the same success as in markets such as the United States, but could be a viable option if you have a product that may have universal appeal.