The best kind of funding for your small business

start-up-funding“Where do I get the money to start my business?” is perhaps the most common question entrepreneurs ask.

However, we believe entrepreneurs should really be asking, “What is the best kind of funding for my business?”

There’s no one-size-fits-all solution when it comes to getting funding for your small business. There are many sources, varying amounts, and of course you must ensure the funding you have your eye on is actually suitable for your small business.

Here are a few things that you should keep in mind when you’re working on your small business funding plan:

  • Stage of the venture process – Are you in start-up? A growth phase? Maturity?
  • Your business’ achievements and financial performance
  • The state of your industry
  • The type of technology your business is based on, if applicable
  • The growth potential of your business
  • Amount of money you need
  • What your company is worth
  • Number of years before an exit strategy is available for investors
  • Investors’ required rate of return on their money
  • Your investors’ terms and conditions
  • Your goals for your company

 

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The daily capacity method of forecasting sales

Last week, we talked about the market share method for forecasting sales. Now, let’s take a look at the second sales forecasting method: the daily capacity method.

Daily Capacity Method

With method of developing a sales forecast, you estimate what you think you could sell on a daily basis. Let’s go back to Jill and Lauren, the flower shop owners we talked about last week. They could estimate the number of customers coming into their shop to make a purchase of flowers or accessories, and the number of flower arrangements sold over the phone for delivery on a daily basis.

Here’s what their sales worksheet looks like:

Product/service Price Units sold/day Total Sales
Floral arrangements by phone $75 5 $375
Floral arrangements in person $60 5 $300
Accessories, home décor $35 10 $350
Cards $4 5 $20
Total estimated daily sales $1,045.00

Assuming the business will be open six days of the week, every week of the year (or 312 days), Jill and Lauren can estimate their annual sales by multiplying 312 days × $1,045.00 to get $326,040. This estimate should also be adjusted for seasonal sales, economic conditions of the region, and so on.

What next?

Both the market share and daily capacity methods of sales forecasting are appropriate. Whichever one you decide to base your forecasting on depends on the quality of your data. Start by talking to people who own similar businesses (though you might not get much help from local competitors – try another part of the city). Talking to people who know the type of business you want to operate will help you validate your annual sales estimates.

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Entrepreneurial Inspiration – Opportunity International and microfinancing

When entrepreneurs in developing countries need to start or expand businesses, but either don’t need or can’t afford a large loan, where do they go?  Opportunity International is an organization that helps entrepreneurs in developing countries. They do this by providing small business loans, insurance, training and savings to clients in over 20 countries. Opportunity works with a mix of fundraising organizations, individuals, corporations, foundations and governments all over the world to build funds for these entrepreneurs. With this funding, entrepreneurs in developing countries can provide for their families and strengthen their communities.

The organization was founded in 1971 by Al Whittaker, former president of Bristol Myers International Corporation in America, and Australian entrepreneur David Bussau. It was one of the first nonprofit organizations to see how powerful microfinance loans can be to entrepreneurs in developing countries who can’t afford or don’t need a traditional large loan to get started. Thanks to microfinance, entrepreneurs in developing countries can do things they may not have been otherwise able to do – start a school, a sewing business or a small grocery store, for example.

In addition to providing microloans, Opportunity International offers microinsurance. This provides entrepreneurs with crop, life and health insurance to protect their livelihood against unexpected hazards. They’ve also built 15 regulated microfinance institutions, including seven banks. They have also used technological advances to allow ATMs, point-of-sale devices and mobile banks to operate in remote areas where residents are typically held back by reduced literacy or lack of formal ID.

As of December 31, 2010, Opportunity International had given out 2.8 million active loans (93% to female entrepreneurs), created 1.1 million savings accounts, and trained 2.5 million clients in business skills. The average first loan is in the amount of $178, and the loan repayment rate is 95%. Opportunity believes in developing staff within the countries it serves, and 99% of its employees are nationals of the countries where they work.

Loans from Opportunity can be as low as $60, but according to their website, “each loan impacts the lives of not just each client, but the lives of an average of five family members or employees.”

For more information about microfinance and the benefit it can have to entrepreneurs in developing countries, check out  So what is microfinance, anyway?

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What is microfinance?

In this month’s GoForth Institute newsletter, we’re answering the question, what is microfinance?

Basically, microfinance (also called microcredit or microlending) is a way of providing credit, savings and general banking services to  millions of entrepreneurs who may be lacking collateral or a good credit rating. Often, a person thinking of starting a small business just needs a bit of money to get started – to buy a computer, farming equipment or other supplies. They don’t need or want a loan for tens of thousands of dollars and, sometimes, they don’t have access to traditional sources of funding. In these cases, microfinance can help them start their small business on the best footing possible.

Read more about microfinance in our June newsletter, including why it’s often referred to as “liberation capital” and what some organizations are doing to support entrepreneurs through microfinance partnerships.

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The real realities of being an entrepreneur

At GoForth, our primary reason for existence is to give entrepreneurs the best small business training possible for success. So it was with considerable interest that we read a blog post by Chicago-based businessman Seth Kravitz, called 20 (More) Reality-Checking Questions for Would-Be Entrepreneurs.

The questions are geared towards those thinking of starting a small business and they don’t shy away from some harsh realities of entrepreneurship – working too hard, uncertainty, ideas that don’t pan out and dealing with stress.

We like this honesty. In our small business education, we encourage entrepreneurs to take a very honest look at themselves before starting out. Yes, starting your own business can be infinitely rewarding, both financially and personally. However, it can also be one of the most difficult things you’ll do. You might work harder than you had as someone else’s employee. You might put a strain on your relationships and finances. You might even give it a shot and eventually decide you’re not enjoying it anymore. These are all considerations you should make before starting your own small business.

We’re not Debbie Downers at GoForth; we’re realists. We want to make sure you approach the decision to become an entrepreneur with your eyes wide open – knowing in advance that the journey can be a bumpy one.  Remember – between your great idea and the grand achievement is the vast wasteland of grinding it out.

Our advice? Read Seth’s post and honestly assess yourself as a small business owner. And don’t lose heart – entrepreneurship isn’t easy, but you can take the most important first step and prepare yourself for the realities of starting and running a small business.

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