Indeed the success of any startup lies in the strength of the foundation but the flow of proper and sufficient funding is something that can make a major difference. It becomes highly necessary for start-ups and businesses to start with a plan where funding holds a major position.
It is the funding that brings to the business the right employees, proper technology, and formulating a comprehensive marketing strategy that helps in the top-notch sales and marketing of the goods and services. As an entrepreneur with an idea for a startup, it becomes highly important to plan the ways of achieving financial support for your business. You must be sure to keep your idea of the business convincing enough that investors find it worth investing in. It is this trust that takes the most effort to build but will also be your motivation to work the best.
Without much ado let’s discuss the challenges you can face as an entrepreneur needing funds for a startup and the ways of overcoming those..
1. Not Planning and building a functional Business Model
The business model is something that highly determines the flow of the startup along with basing the reasons why any investor will contribute to the business. Investors look forward to funding only the scalable businesses thus while making the plan, it is of great importance to create a solid plan that attracts funds and marks as the one where an investor will want to invest.
The scalable business models are the ones that offer a higher margin for a profit with low infrastructural and marketing costs. Even while expanding the business the core offerings of the company must go in hand thus ensuring
Growth of the organization.
2. Coming up with irrelevant Quotations that are not in sync with the plan
Numerous reasons can influence the investor’s decision of contributing to the business. Amongst these, one of the most important is giving an appropriate quotation that fits well with your business plan.
Many entrepreneurs have made the mistake of pitching an inappropriate amount that does not hold congruent with the plan formulated, this creates doubt regarding the business model and the start-up overall, thus leading to investors drawing out their interests.
The entrepreneur must be in the position of forecasting the expenses and the profit it will generate in the plan that they formulate. Not only the forecasts but a proper justification of the same is equally important. It is the duty of the seeker of the investments to develop a concrete idea of the expenses and then pitch a relevant quotation along with allowing negotiations with the investor. Every business goes through great ups and downs but even amongst that if you can portray a constant achievement throughout, your start-up can be said to be one that is successful.
3. Ignoring the demonstration of a positive cash flow model of your company
The cash flow is something that determines the financial strength of the company, thus you can consider it the most important part of the business plan. A cash flow forecast helps you plan your financial needs in advance be it the expenses or securing emergency finance. A good cash flow invests in the reputation of your company and thus you can even be of great help for gaining funding for the expansion of your business.
The right demonstration of the cash flow requires the entrepreneur to calculate the expenses that may arise for the necessary functioning of the company. It ranges from the production of goods, hiring and training of the employees, marketing expenses, and the automation that creates a financial model that is viable and practical at the same time. The buffer calculation and the bottom lines of the cash flow along with the limitations that the company will set on these expenses must be clearly and concretely demonstrated so a convincing funding request can be put up.
4. Rapidly enhancing the investments
Having the support of investors in the business is definitely an asset for the company but rapid enhancement or addition of investments can still do harm to the growth of the company. Large investments or the involvement of multiple investors in a company are the reason for the creation of pressure regarding the rapid enhancement and growth of the company. This may lead to a downfall due to the lack of coping-up strategies.
Initially, the involvement of investors may seem like a great source of growth but the pressure of expansion may lead to spoilage that can prove unbearable to the start-up. Thus in the support of gradual enhancement of the business, the enhancement of the investments must also be gradual and in sync with the cost and profits.
5. Unplanned Funding
Going with the flow and following the competitive market can make the entrepreneurs go with the funding options that do not suit relevant for the startup. When you go to the market you will be exposed to a pool of options that will help you gain funds for your company, these may include Venture Funding, Private Equity, Bank Loans, SBA-backed loans, Savings and family, and Popular investors.
The preparation of the business model should also include this aspect where the right funding option is planned after the proper judgement of all the available options for the startup. This not only helps in making the right choices but also cancels out the possible liabilities of the involvement of the investors or loans in the future.
The entrepreneur must have in-depth information regarding the pros and the cons of any funding option that they avail and this information must be included while the formulation of the business plan.
6. Not following the plan
Laying down a plan, and following through with it are both equally important aspects of starting your business. If you don’t execute your plan of action effectively, then you might see your funds running out. Going haywire on your business and not following through with a strict Plan Of Action can affect your business model severely. In such a case, our advice to all our readers is to develop a budget and stick to it.
It is very important that you regularly update your budget and reflect on your circumstances to revise your plans and make wise business decisions. Treat your budget as a living document, and keep revising it.
Another very important thing that many business owners tend to overlook is the importance of saving for a rainy day. Along with having a flexible budget, you must also maintain an emergency fund for your business venture.
7. Good sales poor profit
This is another major business problem that many startups have to face. One major reason why some businesses are stuck with high sales but lower profits goes back to your product margins. A situation where the clients are unable to make up for the wide gap between sales and profits can lead to budget deficits and an imbalance in the income-expenditure models. And in such a case, your first priority should always be to close the gap. While offering a wide range of products might be good for the face of your brand, sometimes these ranges can cost you more money than the money you’re making. As a start-up or a small-scale business, you must start by offering fewer items that will be sold off easily. When your products start selling off easily, and the gap between your sales and profits is close enough, you can eventually start including more and more products in your range.
8. Poor Financial Management
Can’t save money and have trouble managing your finances? This is a common problem that many business owners have to face once they start their new venture. Sometimes even old and experienced business owners might face problems in managing their finances. This is why we always put a very strong emphasis on stabilizing your cash flow and managing your budget.
Each and every financial step should be taken in your mind first and then in the real world. Make realistic mind maps, write down your budget and share them with your friends or colleagues to get their opinion on the matter. An opinion of somebody that is not you will point out the challenges that you might have overlooked. They will also help you look at things from a different point of view which is very important for your business.
Always accept positive criticism for your budget plans, and work on making them foolproof.
Conclusion
Funding and financial Management set the base of the establishment of businesses. Being an entrepreneur, it becomes greatly necessary to mark out the challenges that they may face in the establishment and the growth of their business and tackle those as soon as possible in the initial steps only.
