Raising Capital to Start a Business – How to Raise Money for Business
Raising Capital / money to finance a new business could be one of the toughest challenges faced by potential entrepreneurs anywhere in the world. Did I say “could be”? Sorry, let me rephrase…. “Sourcing for funds to kick off a prospective business “IS” a major challenge for potential business owners. Well said right? Okay.. At least we agree on one thing. Let’s see if you also agree with the following statements:
- Without capital, your business idea(s) will never become a reality.
- Once you have the startup capital, every other thing falls in place.
- To raise money to start business is not as difficult as most people seem to think.
My guess is you will concede to the first two statements and strongly disagree with the last one. Correct? Well, the bright reality is that no amount of money can make a success out of a lousy business idea or a terribly planned execution. Your business will only burn through millions of Naira, fizzle out and shut its doors forever. However, if you have a great idea but little or no money and you are aware of the diverse fund raising ways, you will most definitely come up with the required funding you need to start your business. Yes, there will be disappointments here and there. Yes, you are going to be stressed. But if you want it bad enough, you will make it. If you tried and failed, then most likely you are doing something wrong. Like I said earlier, raising money for a business is not as hard as you think. It’s some worth easy once you know how to go about it. In this chapter am going to show you some ways to raise money. These methods have helped me and some few others kick off our business in Nigeria. Listen and learn!
Wait o! Let me say this now: If you are going to borrow the money you want to start your business then you will need a good business plan. A business plan is the most important tool you MUST have if you are serious about raising money from outsiders for your business. It is a document that shows your resume, business structure, products and services, market research and marketing strategy, your complete budget and financial projections for at least a three year period. If I lost you there, don’t worry I have a chapter that deals on business plan proper. For now, let’s just say that a business plan is a document that shows in detail how your business is going to work, and how you’re going to make it succeed. Okay? Okay.. Without this document, you don’t stand a chance in sourcing for funds from investor. Even if you are hoping friends and family will raise you the cash, they need to see your seriousness, to see the possibility of your business flourishing, some will need to know what is in it for them (they need proof that you know what you are talking about) So when you have prepared your business plan, knowing exactly how much money you need, how it will be used and how you plan to repay it, you’re ready to start looking for investors. Okay let’s get back to ways of raising money for your business.
- Personal Savings: The best person to give you money without grunting, complaining or asking for interest is yourself. If you are planning on starting a business in the near future, start saving for it now now now. Open a savings account in any bank and start saving bit by bit. Decide on the time you want to kick off your business, spread your savings over that period of time and make it a target to bank a certain amount of money from time to time. If you have a current job, better for you. Let’s say you want to start your business in two years’ time and the organization you work for pays you N80, 000. 00 monthly, you can save up to 30% of that income, which is N24, 000.00 per month. At the end of two years you will have N576, 000. 00 to fund your new business. Your will only need a lot of self-control and discipline to achieve this. No more unnecessary spending, impulsive buying or living to impress anyone. One sure way of achieving this is to have the money deducted at the point of payment or issuing a standing order to your bank. No go keep the money for house oh, you go just spend am. Cash demanding challenges will always arise but believe you me, they will be solved with or without you dipping into your savings. Just pretend there is no savings and find other solutions to them. This way, you will not only be able to raise money for your business through personal savings but you will have imbibed one principle for personal and business success – frugality.
- Sell off Your Unused Items: This is one way of generating cash that most people overlook. Take a good look around you and you will find a lot of unused stuffs; abandoned motor car/motorcycle (your dad used in the 30s), bicycles (you rode as kids), tire rims, old gas cooker, fridges and deep freezers (rat colony), unused desktop computers, black and white TV, air-conditioners, left-over building materials and old furniture all gathering dust and occupying space in your garage and backyard! You can sell off these items and make some sizeable cash. Free cash! Let me suggest this; when you are done selling off all your unused items, go around your neighborhood and offer to dispose the same for your neighbours. You will be shocked at the number of positive responses you will get. You can even sell them on the internet via olx.com and the other classified platforms. You just might turn it to a business jare.
- Family and friends: Another way to raise startup capital for your business is through family and friends. I would say that this is one easy yet hard way of raising money. The easy part is that your friends and relatives can help you with the funds you need out of love, sentiments or emotional blackmail from you. The hard part is that if they don’t trust or believe in you, forget it, you are not getting shi shi. So if you are not behaving right, change oh. You must have earned a good reputation among them before you present your business idea to them. And while you are at it, also present a well-designed business plan regardless of how small you prospective business will be. Don’t go asking for them to dash you the money. Say they should invest and show them in your business plan how you intend to use the money and repay them with interest. One common mistake entrepreneurs make is to meet only one person to help them raise the entire capital needed for their business, that can be overwhelming. Don’t you think so? I think oh. Let’s say you need N650, 000.00, make a list of about 30 family and friends and divide the 650,000.00 by 30, which will give you about N21, 700.00. Then you can approach each of these 30 persons in your list- asking for only N21, 700.00. That way, it is easier for them to consider your request. They will be more than willing to use their church mind to give you the capital or come in as investors.
- Serve a Trade/skill Master: Here, an aspiring entrepreneur serves a business master for a period of time, anchored by an agreement that the master will give capital to or establish the apprentice in a similar business after his service. This method is common among Igbo traders. That’s how they get to be all over the place. Igbo Kwenu! This strategy has a dual advantage in the sense that you learn firsthand the intricacies of the business and still get the required cash you need to set up your own.
- Government Funding/Grant Schemes: You can also get bootstrap capital from Government grants and funding initiatives. These schemes are setup by the government to create jobs, expand existing businesses as well as to cater for entrepreneurs who are brimming with ideas but do not have the financial ability to bring their innovative ideas to reality. In Nigeria, we have the likes of the Youth Enterprise with Innovation in Nigeria (YOUWIN), the Youth Employment in Agriculture Programme (YEAP, and the Enterprise Graduate Empowerment Scheme funded by Nigeria’s Enterprise Bank (there are some other small small ones too). You can sign up on any of these initiatives. There are prerequisites to enter for these programmes though not financial sha.
- Form or join a Common Interest Club (CIC): The idea here is that you look for people with common interest and start a defined contribution plan with them. In this plan, you guys will agree that on a weekly or monthly basis, each of you will contribute a specific amount of money to the club’s common purse. Each time you contribute, someone among you takes the money. This continues until everyone has had a share. The only snag in this method of raising money is the fellas in your CIC must be people you can trust, before someone will carry your money and take off without fulfilling the same obligation to others. This method is a bit risky but a good way of raising cash. Furthermore, this method is usually not promising to many new businesses but for already existing ones.
- Micro Finance and co-operative Banks: Do you know that Micro finance and co-operative banks give out loans to SMEs in Nigeria? Some of them offer non-collateral loans and the repayment plan is in small installments. All you need do is to open a savings account with them or save up to a percentage of the amount you want to borrow, or would have banked with them up to 6 months. All the banks come with different policies and interest rates but I’d say they have really helped many upcoming businesses in Nigeria. If you have not found the cash you need yet, go check them out.
- Find Angel Investors: Angel investors are people who use their own money to fund businesses and in return, they expect a repayment of the investment with interest. They may also decide to own a percentage of your company or both. So if you are not bothered about sharing the success of your business with someone else, you can go for angel investors. An investor could be your family member, a friend, previous business associate or individuals who are into start-up founders’ network. Did I hear someone ask how to find investors out family and friends? That’s not so hard. You can use advertise in your local newspaper. You can show yourself on internet based forums (like nairaland.com, nigerianbestforum.com), social media (facebook.com, instagram) or make use of the very many crowdfunding platforms that have come to stay . You can even share sales letters in traffic, places of worship, social events and so on. You will be pleasantly surprised at the level of response. Trust me. Just prepare a good business proposal and business plan. Once you have a viable product or a marketable service, investors will definitely want to be a part of what you are doing. Do not forget that you may have to give up some part of the ownership of your enterprise for the needed capital.
- Using Suppliers and Customers: This method applies to products alone. A young entrepreneur (that’s you) who does not have funds to start his business can raise cash from his potential customers or other people’s customers. Let me give you typical examples: let’s say you want to start selling motor spare parts but you have no money to start the business, you can approach the major suppliers, take goods on credit, sell with profit and pay back as soon as you make sales. That’s one way. Let me show you another way; have you ever gone to the local market and you meet these guys that will always agree that they have whatsoever you came to purchase in the market? Of course you have as they are always cajoling and dragging or pulling you around. In Igbo, they are called Ndi Oso Ahia. The thing is that these guys have understandings with at least two shop owners in every category of the goods in the market that if the guy brings in a customer to the shop owner and sales is made, the oso ahia guy gets a percentage from the profits. This commission maybe small but imagine where one guy have 25 shops at his disposal and he rakes in N300.00 each from 15 of those shops every day, that’s N4,500.00 in a day! And about N117, 000. 00 a month. No be money be that? You can do this and save up your capital jare. Well that’s if you are not too shy to say “fair aunty we have it here, or handsome brother is it shoes or belts? or “my type of woman, come we will do you well” lol.
- Commercial Banks: Hmmm. These people called “commercial banks in Nigeria” eh, Na wa oh. Well, let me add them to the list because I still believe that bank loan still serves as a means of raising fund for businesses. The only problem is that bank loans are not readily available to new businesses in Nigeria, because they demand a lot of financial security and collateral – two requirements many small and medium scale businesses do not have. However, they can make an exception for you especially if your business is product oriented. Go try out a few. You just may get lucky.
Enough of the long talk! Start saving, start selling stuffs, talk to family and friends, and connect with people who can invest. Start working on ways to raise cash for your business. Totally disregard the usual comments of how there’s no money in the economy. Just keep pushing forward! Remember that for the right business idea, money will always come by. Keep pushing forward.