Nobody gets rich working a 9 to 5 job, with many still struggling to get financial freedom. There is a simple reason for this.
The employee is placed on salary to actualize the dreams of the employer. An employer is a business owner with a better chance of getting rich.
It has led many folks aspiring to start their business as a viable option to escape financial struggle.
The average person is inspired to own a business.
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Still, only a few manage to turn this dream into a reality, with the majority admitting they didn’t succeed due to a lack of funds to support their business idea.
Access to the necessary funds is the foundation to kick-start any business. Let us get to the secrets of generating revenue for business…
The basic steps to raising capital for business for you
Savings
A study conducted by Forbes in the first quarter of 2023 showed that about 66% of Americans said they could save money in 2022.
Savings is usually the first step initiated by most would-be entrepreneurs as a step to raising money, but this takes time, patience and discipline to achieve.
It requires putting money aside from your earnings or what some refer to as “pay yourself”.
Over a long period, a sizeable chunk of revenue must have grown to the point of starting your own small-scale business.
You might wonder how savings can be possible when your current earnings barely meet your financial needs.
Even savings have critical steps to follow before achieving it. Let’s take a look.
Spend below your earnings.
A simple dynamic of cash flow is to ensure what goes out is less than what comes in. In essence, live below your means.
There is a difference between your wants and your needs. Our “needs” are more important than our wants because we can’t do without “needs” but can survive without “wants”.
To cut down on your expenditure, most of your spending should go towards your needs and less on your wants. Basic needs comprise food, shelter and clothing.
To buttress this point, a survey by NorthWestern Mutual carried out in 2023 revealed in the area of reducing the cost of living, about 64% of Americans have made this a way of life,41% deliberately procrastinate on huge projects, while 50% of respondents admitted to putting money aside as means to build up their savings.
There are several ways of dividing your income and allocating each part to form a financial structure to aid one in making savings. Still, one has become a rule of thumb or universally accepted structure.
The 50:30:20 ratio
This structure implies that half of your income or salary should go to your needs, that is,50%, while 30% can be allocated towards your “wants” or what can be referred to as lifestyle, while the remaining 20% goes into savings.
This structure is known as the rule of thumb or standard saving protocol.
There are variations to this structure, of course. Our needs and wants vary from one individual to another. If 20% is difficult for you to put aside, don’t worry. The percentage for savings can fluctuate between 10-20% depending on your income, needs and wants.
In a book by George Samuel Clason titled THE RICHEST MAN IN BABYLON, he recommended at least a tenth(10%) of your earnings should be set aside in worse-case scenarios. In his book, he explained that when earnings can’t make ends meet, an individual can still survive on 90% of their income, barely noticing the slight reduction of 10%.
Software or apps
Some apps can help one manage their finances by limiting expenditure and allocating percentages for savings.
They are usually referred to as PERSONAL FINANCE SOFTWARE. Such programs are designed to help recipients meet their financial targets by tracking their expenses.
There are several apps one can download depending on their need or priority. Some of the best software to manage finances in 2023 are;
- Empower app is known to be the best in terms of advice on investment
- Quicken app is considered to be the overall best to manage personal finance
- The FutureAdvisor app is designed with an emphasis on investments.
- The YNAB app is the best for building good financial habits
- TurboTax, as the name implies, is the best in the area of tax
Debt elimination
It becomes an arduous task to make savings when one has outstanding debts. It is impossible to grow your savings in this condition.
This is the first course of action before savings can be achieved. It is important to sort out accumulated debts to ensure you can set money aside and grow your savings.
A report shows the average debt for an American is $96,371, ranging from student loans, mortgages, car loans, loans for personal purposes and credit cards. Savings could be the foundation of raising funds, but that’s only when one is debt-free. If you are in debt, don’t worry; every problem has a solution, and the necessary steps will be discussed shortly…
Emancipation from the abyss of debt (key steps)
Deposit more than the required amount
Before taking any action, ensure you have checked your finances when your focus is to settle your debts.
Then, set aside a certain amount of monthly money towards your debts. Most debts have an expected amount required to deposit with interest every month.
If you can afford it, depositing more than the minimum expected amount from the lender is recommended.
The conventional structure of the loan business is the longer it takes to make payments, the higher the interest rate.
You can see why paying more than the required amount is smart because it reduces the time it would take to pay off the debt, hence reducing the interest rate, which would be cheaper for you in the long run.
The snowball method
The reason it’s called a “snowball” makes a lot of sense when you consider that happens when there is an avalanche of a ball of snow down a slope of a mountain.
As it rolls down the mountainside, it gathers more snow, and the ball gets bigger until it reaches ground level. The ball starts with a minimum amount of snow and has more snow than when it started.
This method is very useful when the person in debt owes more than one lender.
It prioritizes the different debts from the smallest debt until the largest is settled.
This method helps one to focus on one debt at a time and eliminate them one after the other.
The major advantage of this method is once you take care of the most difficult debt crisis, it encourages one to keep going, knowing the rest is easier.
Committing unexpected funds to settle debts
Money gotten from sources that weren’t expected should be directed towards offsetting outstanding debts. They are usually called surprise packages or bonuses because they were not earned the conventional way. They are referred to as WIND FALLS and can come from the following sources ;
- A return from tax
- Inheritance informs of property or cash
- Bonus from boss
- Payout from life insurance
- Winnings from gambling or lottery.
Loans :
When your savings are not enough to start up your preferred business, the next option is to consider getting a loan from a bank, individual or firm with an expectation of offsetting the debt within a certain agreed period. They come in two major categories…
Debt capital :
Loans acquired from individuals, banks or establishments to a business owner are known as debt capital.
This loan requires the business owner to refund the money with interest within a certain fixed period. The payment period varies.
It could be monthly or yearly. Making refunds towards debts on an annual basis is more beneficial to the business owner than paying monthly with interest.
For instance, when a business owner agrees to pay monthly with interest, it leaves little room for the business to grow.
This is because, in business, turnover is instrumental to the growth of a business. Paying monthly reduces the chances of a business owner to restock their shops.
With monthly payment, the business owner’s chances to buy goods( for those buying and selling) with a substantial amount of money is greatly hindered.
But yearly payment methods allow the business owner to restock with substantial amounts of money, thanks to several turnovers in the business.
Equity capital
This sort of debt is accumulated by going public. This means allowing other individuals or companies to invest in your business, but it comes with a price; you relinquish part of the ownership of your business to them.
They become stakeholders. If you still want to retain business ownership, this option is only recommended if you run out of options to raise funds.
For giving away part of the ownership of your business, it is not expected you refund the loan. You have paid the price already.
The original business owner takes the business public by selling shares to get shareholders or what is known as stakeholders. It falls into two categories known as primary and secondary markets.
Primary market
This is when a business goes public with its security or shares for the first time, also known as an initial public offering.
The advantage of this sort of loan system is the added security it offers to the business via revenue from investors.
The business is less likely to fold than when a business or company still runs privately. Simply put, it’s when a business is offered directly to an investor.
Secondary market
This is when an investor acquires a security or shares and goes to an exchange platform to sell to another investor.
In this instance, the first investor acts as an intermediary between the company and the final investor or broker.
Net profit capital
When the business has picked up, instead of raising funds through borrowing, funds can be raised through profits generated from the business.
Once profit have been established, a company or business owner can redirect the profit to either research, equipment or structures.
Crowdfunding
The fundraising of this method involves creating awareness of the business to the public to generate financial support.
Such awareness is usually done via the Internet. On the Internet, this sort of fundraising comprises three entities;
- The project architect who initiates the business idea for funding is also known as the creator.
- The group members who are interested in the business and ready to support the program
- The platform that all interested parties converge to establish the business ideology.
Final thoughts
Raising capital for business can be a daunting experience with many challenges that require diligence, perseverance, and discipline.
This is why many people who aspire to start their business rarely succeed because most of these steps to raise funds need to be made known to many folks.
Consequently, investors are usually hesitant to invest in a new business and need to be convinced of the potential success of the new business.
They are prone to invest in businesses that are in existence. With these steps or the secrets above, you can raise capital to launch your business ideas and gain the financial freedom that is elusive to most.
Frequently Asked Questions
- What amount of capital is needed to start a business?
It depends on the kind of business you want to venture into. The recommendation is to grow as much revenue as you can. It is better to have more than enough to stop you from worrying so much about the stability of your business. In the long run, it will help you to give your best in running the business.
- What sort of investors should I consult?
It depends on your priorities. If your goal is to seek council along with capital for your business, then investors in private equity or venture capital will be the ideal category to consult.
- Is audit a necessity?
Some investors do need it, while some can do without it. For family businesses, rarely. However, investors in the genre of private equity and venture capital usually need an audit.
