This article has been written for our start up centre by The Recruit Venture Group who specialise in helping recruitment professionals start up their own businesses.
Where do you start with funding for a start up?
Let’s leave aside the possibility of your sitting on a mountain of cash courtesy of the Lottery, an inheritance or a lifetime of prudent saving. If you’ve got the capital you’re sorted.
Without the capital, there are several options for you to consider. It’s complicated. Here are just five possibilities.
The bank. Still probably your first idea, but it warrants some caution. Even in these ‘post crash’ times they have a range of products and business loans available. Interest rates have certainly been higher than they are right now so the bank is an attractive option. That said, they will put you through some rigorous testing and there will be a lot of ‘small print’. The other thing to ask yourself about the bank is ‘do they really understand my business?’ It’s important because generalisations are dangerous and your business will have specific cash flow, seasonal or market sector issues that a bank manager might not be familiar with. And you’re going to be in this for the long run; it’s about more than just that initial cash injection.
‘Peer to peer lending’. At one level you could say that this means simply borrowing from family, friends or business acquaintances. There may not be as much small print with these arrangements but they do come with some emotional ties and demands that are not necessarily what you want in your first months of business.
‘Crowd Funding’. The digital world has opened up new possibilities, ’Crowd Funding’ among them. It’s an attractive idea. But the clue to the possible negative is in the name. That word ‘crowd’. You’re opening up a potentially complex network of funding, with responsibilities to a lot of people.
The Franchise route.You can avoid many of the possible pitfalls, and almost certainly engage with a backer who understands your business sector, by taking the Franchise route. It ticks a lot of boxes. The drawback is that in a franchise you’re going to be working under someone else’s brand. And having your own brand is probably one of the main reasons you want to be a start up
The Joint Venture. The right Joint Venture partner will know about your market and business. They’ll understand. Providing the funds for the start up at the outset, they will also provide support and mentoring that’s so necessary in the early days.It’s the balance between the autonomy you’re seeking and the backing you need that makes the Joint Venture concept work. Free of financial pressure, you can focus on what you do best. Supported, in an informed partnership, you concentrate on building your business without the worries of administration, cash flow and taxation issues – to name but a few.
Choosing the right route into your business will have a massive impact on the future of your business. It’s a decision to be taken only after very careful thought. For more thoughts on this topic contact The Recruit Venture Group.
