Funding: How Start-ups Can Steer Clear Of Making Mistakes

Funding - cfamedia

Starting a business venture is exciting, stress aside. You have the need figured out, you have the solution and the prospective target audience.

Sadly, however, having these alone, will not do. Simply put, a business start-up looking to grow and scale, would require funding.

Not to downplay, how important it is, ‘to start small’, here are a few reasons, funding is important to start-ups:

Reduced Risk to your personal resources

Significant funding for your business will save you the risk of depleting your bank savings while trying to build up your business.

Self-financed companies usually drain the founders of their monetary, time, mental and other valuable resources.

Also read, Is VC Funding The Best For Your Startup?

This is because, every bit of the business endeavour, has to be thought out and resolved by the founders, who may always be worried about where the next meal of rent will be coming from?

Funding gives business start-ups, soft landing and helps with unforeseen circumstances that may arise.

Access to Market

Once you have your product ready, the next step would be connecting it, with a large audience and this takes money and careful planning.

Funding helps you to reach as much of the market, in as little time as possible and will help you compete in the market, with other dominant players.

Future Investors

Getting funding as a start-up, symbolizes that you are positioning for the future.

Funding increases visibility. It adds value to your business and shows prospective partners and customers, as well as future investors that you are worth considering.

Funding Guidance

Regardless of the source the funding comes from, it will not be an unlimited amount and with the guidance and coaching investors have incorporated, alongside funding, start-ups can be sure of utilizing funds, for optimal outcome.

Having examined some of the benefits that start-ups stand to gain from funding, below are some funding mistakes that start-ups should avoid:

Lack of Comprehensive Understanding of the Financial Requirements

This may seem like the obvious thing to do, but a lot of start-ups do not pay attention to this.

If you are setting up a business, you need to be able to compute and determine your capital requirements, in terms of capital and operational costs, to run the business.

Also read, Startup Founder? Ask These Questions Before Seeking Funding

You should start by figuring out what target your business needs to reach, at that point in time.

Lack of Proper Research

The investors or grants you target for funding should consist, mainly, of organisations that have funded businesses like yours, or other complementary businesses.

This is because, they will be more likely to support your start-up, as it is familiar.

They will, also, have something to offer, in the way of mentoring you, as you begin to grow your business.

This is where proper research comes in, as you should, also, be aware of the criteria, which investors use, to decide on the businesses to fund.

Not Paying Attention to your Cash-flow Analysis

Potential investors for your business, always want to see that you have a clear understanding of your cash flow inflows and outflows.

This will give them an inkling into how you are likely to spend the funds they intend to hand to you.

Not paying attention to your cash in and out could, thus, be bad for you. At every point in time, there should be proper documentation of what goes in and out.

Preferring Unrealistic Revenue Projections

Potential investors will like to see the financial projections you prepared, for attainment over a certain period of time, before considering to fund your business.

Do not try to window-dress this, in a bid to impress the potential investors, as many of them are well trained to decipher what is possible to attain and what is not, given certain parameters.

Be sure that, your forecast is substantially reliable and not some bunch of unrealistic numbers.

It is true that, getting funding is not easy. Benefits inclusive, start-ups now have numerous options of getting the funds they need – through venture capital, angel investors, start-up accelerator programs, or crowdfunding, as one of the relatively new opportunities.

While it is important to ‘start small’, funding could be what your start-up needs, to scale up, to compete globally and to enable you to hit your set goals.

Companies like Apple, Google and Amazon, all started as small start-ups, but have been able to grow into business giants, as a result of funding.

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About the author

Sylvia Eguzoro

A graduate of Philosophy looking to delve into the world of business and technology.

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