SOURCES OF FUNDING

Accelerate your business with these expert tips on "Sources of finance". Analyse and discover this TIP!

The Entrepreneur identifies an opportunity and gets all the resources (key partners, team, talented employees, customers, FINANCING...), to turn it into an opportunity. long-lasting company.

I have a opportunity (market segment, validated solution...) I already know that it is economically viable (profitable...), in the elaboration of CANVAS now I have determined all my necessary costs and investments on the basis of the key activitiesI need resources, a partner and I know how much money I need.

The next sprint I need to achieve is financing my projectCan I finance it? If I can't raise enough money I am not financially viable.  

I can be technically viable, economically viable... but not financially viable and fail. 

For example: Setting up a power plant can be very profitable and low risk, a very large market of customers with a very clear and growing need (more electric cars...) but I don't have enough money in my pocket to get the necessary financing.

Can I find sufficient own (my own pocket + partners) and external resources?

I can go for financing if I already know how much money I need (I have already made the effort to reduce the amount needed by bringing forward collections by delaying payments... for the worst month). a good treasury sheet + a clear canvas.

I always have to put something out of my pocket, that all financial risk be borne by others outside my business (banks, suppliers, workers...) is not possible. What percentage does the entrepreneur have to put in? There are no rules. 

According to the phase where I am, I have sources that offer me more funding, look at this TIP:

Where do I get the money from? What source of funding do I need? How do I deal with each source of funding? 

Financing is the resource that entrepreneurs say they need most. More than 70% of the entrepreneurs who apply to us for help say that the financing is the most important thing. (See needs assessment financial information we publish on entrepreneurs in a sector compared to the average).

There is no single source that will cover all the funding we need to move forward with the project, we have to know them all, open all the doors and then choose the cheapest one, or the one with the least commitments, which requires less collateral and therefore less risk.  

At what point should I apply for funding?

The earlier you apply for funding the greater the risk of fail (the ideas fail in a 99%, a validated project fails at 80%, ... a company trading at 0.5%) and therefore more difficult to pass. 

But if I wait too long to apply for financing, I can run into liquidity problems and in this situation nobody finances. 

You have to start moving 9 months before you need the funding, so we always keep the cash flow forecast for the next 18 months up to date, so that we can anticipate in good time.

Those who lend us money ask us for a return (which for us is a cost) that exceeds the risk assumed. They demand guarantees to reduce the perceived risk.

When someone lends me their money for a period of time, they demand in return a profitability to cover the risk that it will not be returned, and it also needs collateral. Depending on the risk version of each source, it may or may not enter into high-risk operations. A bank does not finance high-risk operations, a Business Angel yes.

How to choose the most appropriate fonts?

Due to their cost and requirements...see COST of each source of FINANCING. 

The less demandable the more expensive it is. The LIABILITIES items of the balance sheet represent the sources of financing and are ordered by the degree of demandability of those who have given us the resources. The least callable is capital grants, which is the cheapest. 

• CLIENTS. Advance from customers, or advance payment of customer invoices, factoring, discounting of promissory notes.
• SUPPLIERS. Deferred payment to suppliers, the cost of this financing is the opportunity we lose to take advantage of a discount for prompt payment. Confirming.
• PUBLIC ADMINISTRATION. Capital grants, soft loans (with subsidised interest rate), participating loans, deductions and subsidies. First we take advantage of all public sources (the cheapest...), Guarantees: comply with the order. Cost. 0 unless you default, you have to pay back with interest.
• BANKS.  Financing to be repaid in less than one year, short term (credit policies, working capital loans, discount line), and then long term loans. The cost of this financing, if I am charged an interest rate of 5% per year, in 10 years we will have paid back x1,5
• FFF, not recommended, even though I am required to do so by private investors!
  • Familyfamily.
  • Friends: friends
  • Fools: sporadic non-professional investors, my neighbour...
• Private investors, Business Angels, Venture CapitalVenture capital funds... this is the most expensive financing. They require an expected return of x10.
• Founding partners (your pocket and the founding team)

The best source of funding is the collections I get from my customers. It's money I don't have to pay back, plus the more I sell the more I will be able to convince other sources of finance. Customer financing is the cheapest of all and it is where we have to invest our time.

HOW TO OBTAIN FUNDING FROM EACH SOURCE?

Each source approves in a very different way, I need to understand them in order to make the PITCH appropriate to each source: A) PUBLIC ADM , B) BANKS(C) INVESTORS...

In each source I have only one cartridgeI cannot request and correct the shot if I see that what I have counted is not to my liking. It is very important to be clear about each target before shooting, each source requires a pitch different. 

You can't PIVOT on the same source of funding; today I'm making you a pitch and tomorrow I'll make you a different one... it's no good. We only have one shot for each funder, so you have to be very well prepared before you apply for funding (pitch financial).