What a tragedy that so many great businesses ideas are never executed for want of one critical resource: money.
Many would-be entrepreneurs believe it’s impossible to start a business without investing large amounts of your own cash. But that’s not necessarily the case.
If you have a killer idea and the persistence and ingenuity to see it through, a poor credit rating or lack of personal savings need not be an insurmountable barrier. Here are five possible options a cash-strapped entrepreneur might consider.
The prospect of sharing some of the profits from your endeavors may be galling, but it can be a compelling way to win investors around. In essence, you seek upfront financial investment in return for a percentage stake in your business.
Accommodating another controlling interest in your business, however, you may have less than total autonomy. Some angel investors—as such investors are called—may wish to sit on your company’s board or act as an advisor, while others are content to be sleeping partners and leave you to make decisions big and small.
It’s therefore wise to establish during negotiations how hands on the investor intends to be and other parameters for how the relationship will work.
Crowdfunding involves pitching your new business ideas online – on platforms like Crowdfunder, Indiegogo and Kickstarter – in order to persuade multiple investors to commit (usually) small sums to get your project off the ground.
It is customary to offer your backers discounts or other rewards in return for their faith and finance. But crowdfunding won’t normally involve the issuance of shares or formulation of any partnership arrangement.
Despite this seemingly informal nature, crowdfunding is unlikely to work unless your credit rating is impeccable and you offer a detailed and persuasive overview of your business idea and its merits.
The inclusion of broader benefits to the environment, disadvantaged groups or the community – such as sustainable production methods or providing services to the disabled – will boost your appeal to the more conscientious investor.
Your investors may provide benefits beyond cold hard cash. Many will be advocates for your business, particularly on social media, for instance. And among them there might be accountants, lawyers and other professionals willing to offer their services at discounted rates.
Borrow equipment and resources
Many entrepreneurs start businesses using borrowed resources, either loaned for free or for a nominal amount by friends or business contacts. This can include out-of-hours use of vehicles or premises, for instance.
Never has there been so many ways for resourceful entrepreneurs to secure the equipment they need for negligible sums or even free of charge.
You can put out requests for equipment and premises on social networks like LinkedIn and Facebook, buy and sell used equipment on peer-to-peer platforms like eBay, or get hold of the kit you need via Freecycle, a platform on which people give things away for free.
Deferred payment purchase
A business seller might agree to postpone payment of an agreed sale price and accept payment in instalments – in most circumstances over a period of something like three to five years.
Another benefit for the new owner is the seller’s vested interest in the continuing success of the enterprise beyond the transfer of ownership – because if the business fails, then they won’t get their money.
Deferring payment therefore represents a reassuring vote of confidence in the buyer’s capabilities from the seller, who may also become a useful business ally and agree to stay on in a consultative capacity for a specified period post-sale.
Weighed against this, however, is the fact that such arrangements normally push up the selling price to reflect the risk and delay the vendor is accepting. The buyer must also pay a down payment so some cash is required.
Determined entrepreneurs with an innovative product or service for which demand is likely strong may be able to generate sufficient advance sales to cover business setup costs.
Enterprising entrepreneurs can initially undertake small, crowd-funded test runs to confirm the viability of their concept and as an opportunity to troubleshoot any pre-release glitches.
These five methods aren’t just theoretical; many entrepreneurs have successfully used them to start or buy businesses with negligible funds of their own to draw on. There are many reasons to abandon a business idea – but lack of funds doesn’t have to be one.
Author: Melanie Luff, Online Journalist for BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis. Melanie writes for all titles in the Dynamis Stable including PropertySales.com and FranchiseSales.com.