How to Fund a Business through Personal Savings
Raising money to start and grow a business is one major challenge that affects many entrepreneurs. As a business owner or founder looking for the best way to raise capital for your business, you can fund a business through personal savings, small borrowing from friends & families and through credit purchase from your suppliers. You will also need responsive website designs, social media marketing, corporate branding and search engine optimization strategies to grow your business, increase your online visibility and make more sales.
Of course, there are other sources of business finance you can pursue strategically to get the funds you desired. Personal savings, small borrowing from friends and families and credit purchase from suppliers are some of the viable options you can try while raising money for your small business. Today we are going to discuss how you can fund yours business by saving up your earnings, and getting financial assistance from people around you.
How to Fund a Business through Personal Savings
Personal saving is one of the easiest yet often overlooked sources of financing available to most startup entrepreneurs. Personal savings should be considered the primary source of funds for startup businesses. This is because funding from external sources can be hard, particularly in the early days, so relying on your own resources is a good bootstrap.
Even if you are planning to get a business loan, most lenders or co-investors will require that a reasonable percentage of your money be invested in your business. In fact, they believe that if you have not contributed own cash to your business, this is an indication that you will not work hard to make the business a success. So, below are some examples or tips on how to fund a business through personal savings:
£1. What is Personal Savings?
Funding a business yourself successfully can take several different forms. The approach you take is determined by your financial status. If you have a healthy balance in your savings account, this is the most obvious source to draw funds from.
Have you started savings for your business? What percentage of your personal income or salary are you going to save? Should you invest your retirement funds into your new business? The advantage of using your savings is that there’s no additional cost for using your own money.
If you haven’t started already, get financial agencies or small saving platforms that offer great savings options like daily, weekly or monthly target saving plans or piggy bank. The best savings accounts should give high interest rates, use secure technology and reward programs that provide great customer service.
£2. What of Personal Debt?
Relying only on your savings may not be enough to fund a business, especially as it grows larger. With business loans often hard to secure, many entrepreneurs rely on personal debt instead.
This could be anything from taking out a home equity line of credit or making business purchases on personal loans like salary advance; but before you use this method, you need to assure that you have a good credit history.
Also, pay particular attention to interest rates on the credit, and making sure you do not borrow more than you can afford to payback with the stipulated periods.
£3. Think about Business Cash Flows
Another self-funding method is the use of the business cash flow. Once a business is up and running, it will start generating some profits. This positive cash that can be plunged back into the business.
If the company is doing well, this money can be enough to fund any investments you need to make for your business future growth. This kind of “Organic” growth can be very effective, and is a low-risk, low-cost strategy.
But unless the company is very profitable, it is good to understand that relying only on business cash flows can result in slower growth.
Lean: How to Start Online Business and Make Money Out of It.
How to Fund a Business through Friends and Families
Another easy source of self-funding for your business is short term borrowing from your family members and friends. If your own personal resources aren’t enough, you could go into partnership with your good and rich friends or family members who can pool funds into your business.
Going into business with someone you know so well can be a great way to fund a company, but it can also put stress on your relationship if things don’t work out as planned. We are most likely familiar with a loan (debt) where the lender only gets an interest rate and fees from the profits made.
In this case, such a discussion may arises with friends and family who want to be your partners. Your family and friends will naturally have interest in the success of your business if you take the time to educate them about the risks and reward of the business.
However, it is important to note that people always find it hard to obtain funding from family and friends due to the ways they approach and management the situation. For example, asking your husband, sister or uncle to “help or assist” you by giving you some money for your business is not just enough.
You have to ask them for repayable loans or offer them equity (investment) opportunity in your business with dividends. Tell them what they will gain in a day, every week, or monthly rather than expecting free cash. It shows that you are committed and ready to take up the business.
If you are passionate about your business and your have committed your personal savings from day one, you will find it easy to obtain additional funding from your friends and relatives.
How to Fund a Business through Credit Purchase from Suppliers
Your products suppliers and vendors can be great sources of your business finance. As a startup business, you can purchase goods on credit, and then after you finish selling them, pay back to the suppliers. Although funding a business through credit purchase from suppliers really depends on your relationship with your suppliers and your credit worthiness to vendors.
Tell them to give you purchase discounts – which may also be offered by suppliers on sales of goods to attract new buyers. Purchases along with any payables in the case of a credit purchase are another good means of raising investment capital for your business.
Credit notes for purchases, record books and good accounting system for trade payables are usually important in this kind of business financing. This will enable you record sales accounts and remember to meet payback agreements.
More Examples of Financing a Business from your Suppliers:
- Longer payment terms
- Advertising and marketing assistance
- Furnishing or financing of equipment, signs or inventory.
- Advertising and promotional programs
- Bartering – which is to trade by exchange one commodity for another; this can also provide a source of financing if you can make good use of this.
Leave a Reply