As an entrepreneur, you may have a business idea you believe to be the next big thing and are ready to do everything possible to bring it to life. You draft a business plan, gather some capital, and launch your startup. In the early days, you may notice that your operating expenses far outweigh your revenue. This is common with most startups because they usually lack customers and struggle with brand awareness.
If your business continues running at a net loss, it will eventually run out of money which will disrupt operations. This is an unpleasant circumstance that you cannot afford because you believe in your idea and are not willing to give up yet. Fortunately, you recall that you can raise money from numerous sources. However, you have not done this before and need a guide to help you navigate it. This article will tell the two things to consider when raising money for your startup:
Value of your company
Before embarking on a round of fundraising, you must know how much your business is worth. This figure will give you a basis on which you can sell shares of your company. To know the value of your business, you can approach a company like BizWorth to appraise it and tell you it’s worth in dollars. The company will consider things like assets, employees, existing customer base, revenue, profit margins, cash reserves, and distribution channels when determining the fair market value of your business.
Sources of funds
There are different places you can source funds from for your business. The source you decide to approach depends on the needed capital, preference, and financial projections. If you have enough money saved, you can lend some of it to your business and pay yourself back when the company starts making a profit.
If you need a relatively small amount of money, you can approach your wealthy friends and family members who believe in your business goals to lend you the money at little or no interest. You can also get loans from banks or other financial institutions.
Lastly, you can approach angel investors and venture capitalists. This method is generally reserved for businesses that are projected to make huge returns in the future. The investors you approach will ask for your business plan and market value, past sales figures, projected revenue, and expected profit margin. They will analyze this information and make you an offer to buy a percentage of your business. If you accept their offer, they will give you money in exchange for part ownership of your startup.
Endnote
It is almost impossible to start and grow a company without raising money, it costs a lot to operate a business, and initially, there is a high chance that you will not have enough customers to generate the revenue needed to keep the business afloat and grow it. Before going out to raise money for your startup, have a sound business plan you can show investors and appraise your business to know its fair market value.
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