A recent study revealed that a staggering 94% of new businesses fail during their first year of operation in the UK.
This is a damning statistic that highlights the challenges associated with running a fledgling business, with an underlying lack of resources and sustainable levels of cash-flow among the most prominent.
In this post, we will look at three innovative and cost-effective methods of funding your start-up and sustaining it during a difficult first year:
- Minimise Long-term Company Debt Through Factoring
Factoring is one of the most popular funding options in the current economic climate, and there is one main reason for this. More specifically, factoring reduces the amount of long-term debt in your business from the outset, while enabling you to complete work and establish a viable level of cash-flow.
This is a process through which businesses sell their accounts receivable to third-party investors, creating an instantly accessible fund of capital. This also enables entrepreneurs to negate potentially challenging 60 or 90-day payment terms, while the short-term debt is repaid once clients settle their invoice.
This option offers flexibility to start-ups, particularly those that are service-oriented and have minimal overheads to begin with.
2.Trade the Markets to Build a Personal Source of Wealth
In some instances, you may want to remove all debt from your company by funding it with your own, personal store of wealth. This is similar to investing capital in the form of a directors’ loan, only in this instance you will not place any burden on the business to repay this directly.
Instead, you will raise additional capital and invest this as and when required. A great way to achieve this is to use personal funds to trade the financial market, achieving steady returns that can be subsequently reinvested into your business.
If this appeals to you, there are just a couple of things that you will need to bear in mind. Firstly, you should consider building a diverse portfolio of assets and engaging in spread betting, as this is a cost-effective method of trading that delivers tax-free profits. Also, remember to build knowledge of specific markets before taking the plunge, as you will need a keen sense of understanding and determination to succeed.
3.Embrace Collaboration With Equity Crowdfunding
Finally, we come to equity crowdfunding, which is an extremely viable option for start-up ventures. This is an evolution of the classic crowdfunding platform that first emerged more than a decade ago, when sites such as Kickstarter enables investors to back concept-stage businesses in exchange for a variety of small-scale rewards.
This failed to attract genuine investors to the platform, however, and equity crowd funding has changed this by enabling businesses to seek capital by offering company shares in exchange.
As a result of this, even small start-ups can present their concept to investors, as they look to sacrifice a fixed amount of equity in order to achieve the necessary funds and become a competitive force in their chosen marketplace.
If you do decide to do this, just remember to sacrifice a clearly-defined amount of equity in your firm. This enables you to retain a viable share, and one that motivates you to remain determined even during times of difficulty.