Starting a small business can be a dream come true, especially if you’ve decided to do something you enjoy, such as turning your hobby into a business. Yet, for small businesses, the journey from inception to sustainable is fraught with obstacles and challenges. Indeed, many small ventures lack a well-defined growth plan beyond their initial setup, which can lead to challenges when you are trying to scale up. You may think that growth isn’t necessary, but with rising costs, growth is often the only option to remain sustainable.
Your growth plan needs to include funding strategies so you can overcome the obstacles and pave the way for long-term success.
Before delving into funding strategies, it is crucial to emphasize the importance of a well-crafted business plan. A comprehensive plan will provide a roadmap for growth, outlining:
- Financial projections
- Market analysis
It doesn’t just help you visualize your goals, but also instills confidence in potential investors or lenders. As such, you want a solid business plan to serve as the foundation of the following funding strategies.
One of the most popular funding options is securing a commercial loan from a bank or financial institution. On the plus side, these loans can provide businesses with upfront capital to fuel expansion plans. They have many advantages, including the flexibility to use the funds, potential tax benefits, and the opportunity for the business to build a credit history.
However, acquiring a commercial loan as a small business can be tricky. It involves a rigorous application process, collateral requirements, and high interest rates, which can strain your finances in the long run.
Repurposing business revenue for growth
Another strategy for funding is to reinvest your revenue back into growth. This practice allows you to allocate a portion of the profits towards expansion initiatives, fueling organic growth without debt.
However, for small businesses the main drawback is that it can be challenging to raise sufficient capital. Besides, the growth is limited to the pace at which your business can generate its revenue, which can slow down your expansion.
Opening private equity options
Private equity offers an avenue for small businesses to access external funding by selling shares to private investors or venture capitalists. This strategy allows the business to secure funds and tap into the expertise and network of investors. Indeed, private equity funding can significantly accelerate growth and open doors to new markets.
Yet, this funding option often involves relinquishing partial ownership and granting decision-making authority to the investors. On the one hand, there are now new solutions that guide investors, such as explained in this beginners guide to artificial intelligence in private equity. But on the other hand, not every investor is familiar with the tools and strategies businesses need for growth. Ideally, if you opt for this option, you want to ensure you can select investors who work with the right tools and have the right experience to help you.
Starting a Kickstarter campaign
Crowdfunding platforms, such as Kickstarter, provide an alternative funding option for small businesses with innovative ideas. Entrepreneurs present their ideas to the public to attract backers who contribute funds in exchange for perks.
While these campaigns can generate a buzz and unlock the fund you need, they require compelling marketing and persuasive storytelling. Besides, the competition on those platforms is tough.
In conclusion, regardless of the funding option you choose, you want to develop a business strategy that can not only back the right funding option but also appeal to your audience.