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4 ways to finance your business

Starting your own business is an exciting endeavour. Introducing a new product or service to the market and designing your own future are why many people enter into the startup game. But there are many mundane sides that should be addressed before starting out. One of them being the funding of your business to facilitate growth.

The first step to getting funding for your business is to have a solid business plan. There are specific categories that need to be included within a business plan to receive funding. These categories include the company’s description, market analysis, organisation and management plan, detail on the value proposition and marketing and sales plan. If you’re interested in financing your business with outside capital, a funding request and financial projection should then also be included. And once all the required information is gathered, it’s time to approach a creditor.

Whether you’re looking for startup funds or capital to expand your business, it can be challenging to find finance in any economic climate.

Here are four financing techniques and what to know when approaching them. .

What is factoring?

It’s a finance method where a company sells its receivables at a discount to get money up-front. It’s used by companies with poor credit or businesses such as apparel manufacturers. But this is an expensive way to raise funds. If your company sell its receivables, you’ll generally pay a fee that’s a percentage of the total amount. If you’re, for instance, paying a two percent fee to get funds thirty days in advance, it’s equal to an annual interest rate of about 24 percent. And because of that, the business will have a bad reputation over the years. Businesses are forced to look for alternative financing methods and many big companies are trying to make factoring more competitive. These exchanges will allow businesses to offer their receivables to many of the factoring companies at once.

Make use of a credit card

Startups are likely to use credit card financing to get their businesses off the ground. And that’s because owners of startups don’t yet have business credit. Their own personal credit is all they have. If you make use of your personal credit card to find your business, you’ll be responsible for any debt you incur. 

Making use of a personal credit card for financing your business means taking on a significant amount of risk. If you fall behind on your payment, your credit score will be exhausted. And if you pay the minimum each month, you could create a hole you’ll never get out. But if you use a credit card responsibly, it can get you out of the occasional jam and even extend your accounts payable period to shore up your cash flow.

How about an angel investor?

Angel investors are individuals with business experience who use their own money and invest in startups. They usually invest in companies who’ll turn a large profit quickly. When pitching an angel investor, you should be succinct, avoid jargon and always give an exit strategy.

If you want to win over an angel investor, you should add people with experience to your management team. Even an unpaid but experienced adviser could increase your trustworthiness. Did you start your company because you want to cash in on the latest trend or because you’re passionate about your idea? Angel investors will spot the difference and won’t give much attention to companies interested in get-rich-quick schemes.

You’ll need market assessments, competitor analysis and robust marketing plans if you want success and expect to get anywhere with an angel investor. Even though you’re a startup, it’s expected that you can demonstrate expert knowledge of the market you’re about to enter.

Approach family and friends

If you’re looking for ways to finance your startup, asking family and friends will be the easiest way. But remember when you turn loved ones into creditors, you’re risking their financial future and could jeopardise your personal relationships. A typical mistake is approaching loved ones before a formal business plan is in place. It’s important to supply formal financial projections. And with that, give an evidence-based assessment of when your loved ones will see their money again. It’ll reduce the likelihood of unpleasant surprises. Your investors will also know you’re taking their money seriously.

It’s important that you discuss the possible risks involved. Offer a strong and detailed business plan but make sure they’re realistic about the risks involved.

You should look for creditors offering a wide range of equipment finance packages for companies, regardless of whether they’re in their early stages. There are many other ways you can finance your business, whether you approach an angel investor or family and friends. If you want to build your business up for success, the key is to have a well-detailed business plan.

Tips for making your business’ finances great

There’s no time like right now to start making your business’ finances great. If you’ve been thinking that you could be doing a little better when it comes to business finances and expenses, now’s the time. There really is no better time than the present to put in place good financial habits. You might be thinking that you can wait until next month or, even worse, next year. But it really would be beneficial to put more thought into spending and saving your business’ money.

The only way to really make new habits stick is to become committed to these ideas now. Experts on habits are unanimous on this. If you’re going to make new habits a part of your life, you need to start immediately. Not tomorrow, not on Monday, not on the first of the new month and not on January 1. These are just random future dates. Your habits won’t immediately stick just because you started on those days. Here are some tips to help you really change your habits.

Start planning

You need to have a plan for your business to be successful. You can’t just hobble from one crisis to another, or from one big win to hoping for another. You need to have defined goals for each day of the week, month and year. You need to know what you’re doing and why. Otherwise, you’re just reacting to whatever’s happening around you rather than being the person in control of your business. It’s important that you also regularly assess your goals and make sure you’re still working toward them. Without setting goals, you’ll spend your days running from one crisis to the next. And that’s no way to do business.

Get organised

There’s not much point in doing all that planning if you’re not going to actually make your plans a reality. If you don’t do that, you’ll likely be spending time and money on tasks which aren’t beneficial to your company. “If you fail to plan, you plan to fail,” said US founding father Benjamin Franklin famously. And he couldn’t have been more right.

Set a budget

They have a bad reputation. But they don’t deserve it. And setting one might not seem like the most fun task, but it’s essential. It’s incredibly important that you know what money’s going out and what’s coming in. By creating and sticking to a budget, you can find the line items which can be cut so you can slash your operating expenses. In the same way, by doing this, you’ll know if you need to apply for financing like machinery asset finance.

Hire the right people

You might be tempted, at the beginning, to hire the most affordable employees. But sometimes staff members are cheap for a reason. There’s a very fine line between hiring inexperienced people who won’t cost much and more experienced staffers who are a little more expensive. And there isn’t always an obvious answer about which you should choose. You need to approach each situation individually and see what’ll work for your business.

Trust people to help you

As the company owner, your time is more expensive than anyone else in your company. And that’s why you should trust them to do some of the work. The smaller tasks of the day can be assigned to other, more junior employees. You need to focus your time on activities which bring money to the business. If a task or activity doesn’t do this, it shouldn’t be your priority. Yes, it can be tough to let go of the reins. But, sometimes, that’s exactly what your business needs.

It’s essential that you think carefully about your business’ goals and your habits in making sure they see the light of day. We spend a lot of time talking about personal goals but setting these for business are equally important. After all, goals for your business should have one outcome, its financial success. And, of course, you want that.

So, keep these habits in mind and make them a part of your daily life now. You’ll be thanking yourself tomorrow, on Monday, next month and next year.

What 2016 tells us about financing a business

If we’ve learned anything from 2016, it’s that there’s plenty business can and must do to help protect themselves from events they could not have foreseen. To that end, it’s worth thinking about what we can do, as business people, to help keep our businesses afloat while the world goes on. Businesses won’t stay up because we want them to, but through hard work. We need to be able to handle what occurs and look out for dangers that might threaten their continued existence. Just as we care for any loved one, we must be mindful of what could pose a threat to businesses – 2016 shows us that many of the biggest dangers could come out of left field. To that end, let’s look at ways to protect our businesses from any possible dangers.

Look for bargains

We make our own success, but it also involves knowing where to find opportunities for that success to blossom. One clear way to make success into a reality rather than a dream is to find the best deals and bargains. For example, here is a detailed way one American finance writer managed to get an expensive electric car reduced in price. Instead of spending $35,000 on a brand-new electric car, he got it for under $14,000. Businesses must look at their financing options in terms of the best way to make the most out of a little – or, perhaps, how to get exorbitant prices reduced.

Beware “gurus”

Nobody can predict the future, yet many make their money off selling their beliefs to businesses desperate for a path. These finance gurus tend to offer vague reasons for their predictions, forcing businesses down paths they would otherwise have never gone. Consider some of the worst financial predictions in history, by some of the smartest people in the world. For example, in 2010, entrepreneur Richard Branson warned that “the next five years will see us face another crunch – the oil crunch,” predicting a severe supply shortage. Of course, six years later, the price of oil is actually lower than it was then. Businesses must on the evidence they have, that will benefit themselves and shareholders, not the words of those who claim to have knowledge they could not possibly have. The smartest people in the world did not think Donald Trump would get elected or that Britain would leave the European Union – yet both of these large events occurred and have dramatically changed the landscape. How many businesses were prepared when these events occurred? How many were protected from the financial fallout? For example, did these companies have protection for their immigrant employees? Did they have proper health coverage (the repeal in America of the Affordable Care Act has left millions without healthcare, meaning they might not be able to work – a reduction in people able to suddenly work will have a massive impact on businesses and therefore the economy).

Be creative

Business people must be more creative than ever, as they go forward. It’s using plant and machinery finance in clever ways to create more jobs, services and so on. It’s creating new advertising campaigns, drawing in younger people, getting active on social media. Creativity means standing out from others, an expression of individuality that draws people in so they want to work with us in various capacities. 2016 showed that creativity is key, especially in a world that is increasingly competitive.

Proper hiring and proper management

Our business is only as good as your least talented staff member. Hiring the best people must be at the top of our list of priorities. Businesses are made of teams, so if one person messes up, it falls sideways and upward. That is, it affects everyone, not just the work of the person who made a mistake. Competency must be paid for and rewarded, which means it is on us to treat our staff properly, doing what we can to retain them for as long as possible.

The longer someone works for us the better for everyone, since this establishes a long-standing dynamic that gives a measure of stability to the constant shifting market. For example, we could listen to various studies that indicate working from home has enormous benefits. Not only do people then feel more inclined to work for us, but their work improves, too. If our concern is that people need rigour and micromanagement in order to complete their work, the failure is ours not theirs – we should not be hiring people who can’t work when left by themselves. Otherwise we’re being teachers and watch dogs, not managers focused on production, ideas and so on. Implementing new strategies for the benefit of staff will go a long way to making a business better than it ever could be.

People are always looking for ways to stay employed after all and no one likes the sense of fear, when leaving. There’s no guarantee any job is forever and the lack of job security is one reason people tend to stay in position longer than before – after all, even advanced degrees are not guarantee we’ll be employed. Yet that shouldn’t stop us as business people putting effort into retaining the staff we do have.

Investment, frugality and other ways to retire right

coinsEveryone wants to create a life of success and stability. In this world, the only way to do that is to have enough wealth accumulated to live off. Naturally, you can continue to work and earn an income, but the majority of people will not have such an opportunity. To that end, it’s worth considering what kind of steps will aid you in achieving a better financial future. It will not be easy, but it will be harder still if you don’t act now. Let’s consider some ways you can begin taking steps to help retire right.

Savings

The most obvious way to obtain wealth is to accumulate it slowly. This allows you to put away a small amount each month, leading to a large outcome benefiting you at the end of your working life. Savings accounts rely on compound interest. As The Calculator Site summarises:

“Basically, you’re getting paid to do nothing more than keep your money in one place (a savings account). You don’t need to juggle finances. You don’t need to try and calculate monthly or annual returns – it’s all done for you. At its simplest, the investment vehicle you put your money into will give you interest on the interest they’ve already paid you. Money for nothing – seems like a good deal. And the banks just keep on giving. As long as you leave your money in an account, it will continue to accrue interest.”

By simply leaving money alone, you can benefit enormously. But this means having the money in the first place. To get this money requires its own thinking and interventions.

Be frugal

A common issue is that people struggle to think long term. As Forbes’ Gregg S. Fisher points out, this is known as self-control bias.

“[this is] the common condition where people fail to act in pursuit of long-term goals due to a lack of self-discipline. Workers know logically that they need to save more for retirement, but they struggle to forgo present consumption, owing to lack of self-control, an emotional bias. Consider Warren Buffett’s simple definition of investment: ‘Investing is forgoing consumption now in order to have the ability to consume more at a later date.’”

Before tackling the topic of investing, it’s worth thinking about how you can be frugal. There are large and small changes you can make to your life that will lead to more savings. In their comprehensive list of ways to be frugal, Money Crashers points out how avoiding speeding tickets is one easy way to reduce unnecessary expenses.

“The next time you have somewhere to be at a specific time, set your alarm for 15 minutes earlier than you would ordinarily. Not only do you stand to save money by driving the speed limit, you might also save your life – or someone else’s.”

Furthermore, you can get flagged by insurance companies as reckless, if there are tickets linked to you. This could mean paying more for your premiums years into the future.

Also, if you don’t need a specific item right now, consider waiting for a sale. Items that are luxuries should be considered thoroughly before buying. Remember that the money that goes into an expensive luxury item could end up benefitting you far more if it’s put away in a savings account, to let compound interest take effect. It’s more valuable in this way, than for any one single item. Another way to think about it is like this: the money saved can end up buying two luxury items in the long term, rather than just one now in the short.

Investments

Naturally, the other common option is focusing on investments. There obviously exists specific investment plans focused on retirement, but you should consult with brokers to look wider. If possible, investigate as many as possible, including tax free options.

Unlike savings, investments are more risky, but ideally you will have diversified where you put your money. This means both savings and investments. In this volatile economic climate, it can be difficult and people might opt for the safer option. But investments are significantly better for acquiring wealth, since they have larger returns and tend to overcome inflation.

Summary

As Fin24 noted, it is possible to think of alternative uses of your money for retirement:

“If you decide to save for retirement on your own, you can choose to receive your full salary (which attracts tax) and then save a portion of this money towards retirement. A more efficient strategy would be to utilise a company pension fund and contribute the maximum amount possible to achieve the tax deductions available in terms of pension savings.”

New tax laws are also allowing for better, smarter responses to savings and tax deductions. As Business Tech highlights:  “It is envisaged that workers will be encouraged to save (more) through retirement funds, to curb old-age poverty and excessive dependency on relatives.”

By thinking broadly about your money, you can find an optimal solution. Your life can eventually lead to a smooth retirement but it won’t be easy. The time to start is now.

 

 

What to look for in investments

One of the most important ways that we attempt to secure our finances, whether as individuals or business owners, is with proper investments. Knowing what makes for good investment then is crucial to everyone, in terms of financial decisions.  Let’s consider what a good investment looks like.

What is an investment?

Broadly speaking, investment refers to something that will ideally generate income, profit or will appreciate in the future. As Investopedia highlights: “In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.”

Examples of investments that most people know and use are stocks, businesses and real estate. Each of these can be invested in, ideally leading to an increase in an investment’s value – which means, should we wish to cash out or sell, we will have more at the end of the day.

Naturally, this means there will be better and worse qualities defining what constitutes good investments.

What makes for a good investment

The first thing to consider is what the total value is of the company versus the stock. This means knowing market capitalisation. The Economic Times defines it as: “The aggregate valuation of the company based on its current share price and the total number of outstanding stocks.” We should speak to financial experts so that we aren’t overpaying for a company’s stocks. Bad investments are often a result of paying too much for stock, for companies that are in fact worth less in terms of market capitalisation calculations.

Second, we should know about a company’s overall growth and per stock growth. As one investment expert noted:

“Most investors focus on a company’s share price. They should spend more time looking at a related question – how many shares the company has, and whether that number is growing or shrinking.”

This has an enormous impact in terms of the financial decisions we make, since it could mean we get swindled easier.

Third, we must remove emotions from business investment. No matter how much we might love a business, relate to its staff and so on, these shouldn’t be sufficient reasons for our investment. While feelings and emotions can drive a business toward profits, that’s no guarantee.

All of this is incredibly important when considering what constitutes best investments in South Africa and around the world.