Start-up companies are recently founded businesses or companies. They just start their development and creating the products or services. It usually needs high investments to start any idea and deal with its realization. The future success of a company often depends on whether it finds enough resources for business purposes.
That’s why one of the most critical steps of the development, when startups finance an entrepreneurial venture is in sight, is to ensure an adequate financing source. The sources of finance to fund it depends on some factors: purpose (what the investment is going to be used for); time period (how long the finance will be needed for); amount (how much money the needs) and ownership and size of the business.
Traditional methods represent a logical sequence for start-up companies to start raising money, and most start-up companies enter the entrepreneurial world in this way. If the start-up project founders do not have their own financial resources and cannot independently raise the start-up without external investments, they usually turn to the traditional financing sources.S uch as bank loans, 3F (i.e., Friends, Family, and Fools), seed investments, business angels and venture capital investments.
- Bank loans are probably one of the oldest formal financial sources for many entrepreneurs and genuinely mean that an individual or company can take a loan from one or more banking institutions. This is money borrowed at an agreed rate of interest over a set period of time. This is a medium or long-term source of finance.
- 3F – Friends, Family and Fools. Before they turn to external formal financing sources entrepreneurs should try to collect their initial funds from those people. They are the closest and familiar to them such as friends and family (informal sources of financing) before they turn to external investments such as business angels, various funds or banks.
- Seed investments are also known as initial investments that help start-up companies in expanding their business. Start-up companies engaged in technology development with rapid growth potential due to the nature of their business often explore seed investments. In order to accelerate their growth and the development of their products. A very popular way of funding start-up companies and receiving seed investments are private investors. Who wants to invest their capital into potentially successful businesses.
- Business angels are investors who help entrepreneurs realize their business ideas. In addition, business angels help by sharing their knowledge, experience, and financial resources not only with start-ups but also with established businesses. That already have a track record but are temporarily in financial difficulties. The greatest value of business angels is the so-called “smart funding” that includes providing skills, expertise and business contacts, while most common reasons for investing are the acquisition of profit, encouraging entrepreneurship, business activity and creating new value.
One next step when you find money aid is to perform your finance management in the best way. Why is it so important?
It’s because financial management allows planning the general business growth, to develop and improve your products, services, to find new possibilities and reach new markets.
That’s why we decided to gather top useful tips that can make the financial management for startups easier:
- Have a clear plan. A plan will establish where you are and where you want to get to over the next few years. It should detail how you will finance your actions and its activities. What money you will need and where it will come from.
- Monitor your financial position. You need regularly control your business position including rase or drop in the sales, the competitor’s profits, etc. If you have theexpenses rate higher than profit level, that can cause the collapse of your startup. To avoid this perform the excellent planning and monitoring of your business process.
- Have a cash management plan that provides your business effective utilization of cash, and allows to meet the short-term liquidity position of the concern.
- Be sure that customers pay timely. To prevent the possibility of late or non-payment, you should inform about your credit terms and conditions naturally in your agreements, website pages, etc. You can use a computerized credit management system that will allow you to track of customers’ accounts and even propose the best products options for buyers depending on their interests.
- Meet tax deadlines. Be aware of your taxation system and all procedure for filing tax returns and payments. Non-compliance with it can cause fines and interest from the state authorities. Moreover, you can even return some your money due to this forward-planning.
About the Author: Sherry Edwards is a content writer and editor at Flashnews. She has MA degree in philology and writes the texts on the different subjects including education, career, business, blogging, etc. If you have any questions feel free to ask her in the comments below.