Every entrepreneur and freelancer knows the mad scramble for cash that precipitated the rise of their business. It’s one of the most terrifying and stressful aspects of managing a startup. A privileged few are lucky enough to be able to fund their business ambitions using their own private capital. But in an economy where wage repression is at its most sustained since records began, the private rental sector is so under regulated that more and more of us are spending a greater proportion on keeping the roof over our heads than ever, those few are growing ever fewer. Fortunately, a lack of private wealth needn’t hamper one’s entrepreneurial ambitions. While there are numerous sources of income from government grants to bank loans to a whole host of initiatives in between. Unfortunately, in planning their funding applications many entrepreneurs inadvertently hamper themselves. As a result their businesses may struggle to get off the ground or implode before they’ve had the chance to grow.
Avoid being one of these unfortunates by steering clear of these funding pitfalls…
1. Asking for too little money as a start up
Entrepreneurs walk a tightrope between keeping initial overhead costs down wherever they can, and ensuring that they secure enough capital to secure the equipment and resources that they need to make their business a success. It can be tempting to err on the side of caution, assuming that the less you borrow, the more luck you’ll have with lenders, but in many cases the opposite turns out to be the case. Borrowing too little than is fit for purpose reeks of poor planning and is likely to lead to your application being rejected. Even if a loan or grant is awarded, you may find yourself in an even worse quandary if you haven’t enough money for essential equipment or try to get by on substandard equipment. If you don’t have the right equipment from Mills CNC you can’t manufacture. If you don’t have adequate EPOS equipment, you can’t make transactions. Be realistic in your costings projections and you’ll be much better off.
2. Leaning on too many investors or financiers
It may be demanding to secure adequate funding from a sole source, and in this instance it’s perfectly natural to turn to two or more lenders. While there’s nothing intrinsically wrong with that, we’d argue against depending on too many lenders. The more lenders you have to manage the more promises you have to make and the more relationships you have to maintain. It can make your bookkeeping unnecessarily complicated and bring the whole house of cards tumbling down if your relationship with just one of them sours.
3. Creating a cash flow crisis
Your ability to manage your liquidity through a healthy cash flow will be a measure of success for your business. With so many overhead expenses to account for, startups often find themselves burning through their seed capital quicker than they expected, creating a cash flow crisis that inhibits their ability to buy stock, make repairs, take on additional employees or invest in new equipment. Keep your spending manageable and your income / costings projections realistic and you’ll avoid a potentially fatal cash flow crisis.