Entrepreneurs can get creative in how to fund their startup.
Many entrepreneurs seek funding for their startup via ‘traditional’ means, using their personal savings and credit cards, asking friends and families for seed money, and approaching banks for funding or angel investors and/or venture capitalists.
For those who seek loans or grants to finance their business, the government offers its Canada Small Business Financing Program where small businesses with gross annual revenues of $5M or less are eligible to apply.
For those who operate an agri-business, be sure to check with www.agr.gc.ca to determine eligibility requirements for financing.
For those operating not-for-profit or charity organizations, CharityVillage offers a wonderful listing of government-backed funding and grant programs.
Get creative with business financing, here are 5 ways; it’s a great “thinking-outside-the-box” exercise.
1. Leverage the power of like-minded individuals in online social communities. Crowdfunding is a great way to bring products to market through the small investment of Web strangers that are interested in a product, service or business model they believe in. Some crowdfunding sites have an established community and offer a great opportunity for further marketing a business. According to Massolution’s 2012 Crowdfunding Industry report, over $2.7B has been raised across crowdfunding platforms with more than 1 million campaigns successfully funded in 2012. Business owners should understand there are two crowdfunding models: donation-based – individuals receive rewards, products or perks and investment crowdfunding – individuals become shareholders or owners with a potential for a financial return on investment. The National Crowdfunding Association of Canada is a great starting place to research this fundraising model.
2. Seek university entrepreneur seed funding programs. A business’ next round of funding could be as close as the nearby university. There are numerous universities throughout the country that support innovation in technologies. Some offer pitch competitions with significant awards for winners, co-working spaces, grants or access to funders for early stage startups or aspiring entrepreneurs. The University of Waterloo offers its Velocity Fund. Some universities may partner with the private sector and investment community to offer seed incubator or accelerator programs also such as University of British Columbia’s entrepreneurship@UBC Accelerator Program.
3. Offer a pre-sale of your products. Think of major events such as the World Cup or new technologies such as the iPhone. Pre-selling products is a great way to fund the manufacturing process of the products and the side benefits are it generates anticipation and a buzz and it gives the business owner insights to customer behaviour. Pre-selling can be applied to professional services, such as workshops and consulting sessions, and membership sites.
4. Seek Purchase Order Financing. Some service providers, IT companies or manufacturers of products find themselves with a sizeable customer order and yet lack the financing for raw materials, labour, packaging and shipping. Financing institutions and organisations exist to provide up-front funding for startups or those businesses with a significantly large customer order.
5. Investigate Factoring Accounts Receivables. Startups with high volume may find this a desirable financing tool. Dependent upon the industry, a third party commercial financial company purchases the accounts receivables (invoices) of a business and in as little as 24 hours, money is advanced instead of the usual 30 to 60 days it takes to receive a customer payment. No debt is incurred and factoring is not a loan. The funds are typically unrestricted and a fee is incurred for this service.
One does not have to use 'traditional' financing methods. It truly does pay to be creative when raising money for a business! Managing cash flow is an important way of ensuring business success. Every startup needs a method of determining cash flow – a cash flow chart is a great tool. Knowing the break-even point is also important for startups to calculate – startup expenses and projected income are calculated for the business owner to determine when a profit can be expected. This break-even calculator is a simple tool to use.