Do you have a viable idea for a new business? Congratulations! You’re already on your way to starting your startup. Of course, the road to business success presents many challenges – none more challenging than finding the right way to fund your business to begin with.
So what can an entrepreneur like you do in this very common scenario? Looking past generic bank loans might just be the answer. That’s why we thought you might appreciate 6 creative financing methods to help you fund your new business venture.
With a plethora of crowdfunding options making the rounds, many startups are choosing to utilise platforms such as Kickstarter or OzCrowd in search of funding. Online crowdfunding platforms create a pathway for you to network with hundreds of potential investors who may be willing to fund your business with a loan, by purchasing some kind of reward or product or by simply making a donation.
Of course, crowdfunding is highly situational and the public needs to believe in your idea enough to invest in it. Perhaps the biggest benefit of crowdfunding is the potential to raise funds without giving up an equity stake in your business. And an added bonus can be that you spread the word about your business idea. However, crowdfunding does require a lot of effort, time and preparation to successfully execute.
As always when it comes anything business and money related you might like to take the taxman into consideration too. Why? Crowdfunding may cause a possible tax issue with the ATO. In the unlikely case that your crowdfunding method is subject to payback (i.e. a form of loan), the income is not taxable, as is the case with issuing shares for the funds contributed. Unfortunately, however, with almost any other form of crowdfunding where an ordinary company or sole trader/partnership is conducting business, there is every chance that the ATO will identify the income generated as taxable.
- Angel Investors
Did you know? Angel investors have been responsible for the start up of some pretty big-named companies – Google and Yahoo just to mention a couple. And if seeking angel investment is good enough for them, it could be a good alternative for you too.
Angel investors are usually informal and private investors/entrepreneurs that are happy to invest their own private capital into companies where they see potential. They often ask for a seat on the board for their generous contributions, which, given the years of knowledge and experience they can bring to the table, might not be such a bad outcome.
- Startup incubators
Firstly, what is a startup incubator? An incubator is a physical space in which you’ might relocate your business to be surrounded by other startup companies. With pooled resources and networking capabilities, you’ll find working with a startup incubator will provide your business with not only mentorship but investment capital too.
There are plenty of startup incubators in both Sydney and Melbourne, including (but not limited to):
- Sydney: Startmate, PushStart, The Founder Institute, Ignition Labs, ATP Innovations and more
- Melbourne: Angelcube, STC Australia, York Butter Factory and more
- Sydney and Melbourne-based: Excelinc, BlueChilli
- Friends and family
Do you have a relative with a little spare cash to throw around? One of the easiest and quickest ways to secure funding is to rely on the people who trust you and know you well i.e. your friends, family or colleagues. Of course, you’ve no doubt heard not to ‘mix business with pleasure’, so as with any business encounter, it’s important to outline and identify the roles, responsibilities and agreed upon commitments of all involved so you don’t blur the lines. Maintaining professionalism in business is very important, so having clearly written agreements, terms and conditions is key.
- Online Lending
In recent years, online lending services have grown in their popularity as an alternative to traditional business loans. Of course, as with most things online, the biggest advantage of online lending is speed, with most applications taking less than one hour to complete.
But as always, before you commit to anything online – or give anyone your bank details – we recommend you seek professional advice.
- Product presales
One of the most effective methods of raising funds – and often the most frequently overlooked – is selling products prior to your launch. Doing so won’t only help you fund your startup or production of inventory; it can also help you to gain a better understanding of your target audience too.
While pre-selling your products sounds great on paper, there are still some risks involved. Imagine you need to pre-sell 5000 units to begin production, and you only sell 500 – how do you manage the expectations of those who have already paid for your goods and are expecting delivery? And what’s more, how do you even provide a delivery date on goods you haven’t manufactured yet? And there might be legal issues to consider too.
That’s why it’s important to consider both the benefits and risks associated with any form of startup funding before making the decision as to which method is right for you. And as always, we recommend you seek professional advice before doing so.
Of course, if you could use some extra help with managing your business finances, we’d love to help! You can call Kerry on 02 6023 1700 or drop us a note.