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Funding your business

F for Finance
Series of articles giving deep insights about sourcing and getting finance for business.

 

Bootstrapping

The word business or startup is incomplete without finance or funding. The funding is required at the time of inception i.e; at the time of starting, at the time of scaling up and even at the time when the business is at peak. The quantum, ways and means differ depending upon the size and scale of business operations. However as the motto of any venture is to earn profit, it needs to fuel itself sufficiently with finance.

The first and foremost means of funding your own venture is through “own money”. The terminology nowadays well known as “Bootstrapping”. The founder/entrepreneur decides to fund his dream with his own money and starts from scratch. The amount of funding that he infuses in the venture is termed as ‘Capital’.

The amount entirely depends upon the business idea and whether in manufacturing or services sector.

The initial amount for starting up is largely spent on registering the business as a legal entity, getting equipped with the office place, office furniture, depending upon the business the website or mobile app development, hiring trained or untrained staff and getting the raw material & equipments in place.  The real problem here is if the investment is required for carrying out research and development activities and or manufacturing innovative products.

Ways & Means

Own savings ..assuming you have been staying and sleeping with your dream for a long time and have taken calculated risk. The savings are major source of raising capital and often known as promoter’s contribution. It is though advised to gather the savings in one bank account, open a Fixed deposit and then avail for Overdraft facility against the fixed deposit. In this way, you have a fixed account to incur the preliminary expenses and plus the savings are retained in the form of a fixed deposit.

Apart from own savings, one can rely on friends & family. The option sounds more comfortable though tough. Lot of efforts are required to convince people about your business idea and make them part away with their hard earned money that too in  some idea which is yet to generate results or at growth stage.

The benefit of putting in own funds is that your business, your business decisions are in your control. You are not in pressure of taking any unenthical decisions or take any actions which do not define your principles.  Moreover you are away from paying huge chunk as “interest’ to lenders or investors.

However, at a certain point of time the external funding source has to be opened up as the own funds restricts scalability. The business has to grow year on year and which needs funds as fuel. So keep the option of bootstrapping till initial years of inception of till a particular level of growth is achieved.

The most interesting part here to generate money out of the money invested. The funds either small or large are required to give considerable returns within pre defined or calculated time period. The gestation period or call it as the period the venture needs to stand on its own without external funding ought to be low.

 

Author : Sonali Bhope