So, you’ve completed the first part of building a successful business. You’ve got your startup off the ground, you are trading reasonably well, and a decent profit is rolling in. Like all good entrepreneurs though, you are already looking forward to the next step – expansion.
Expanding a business is nearly as difficult as getting it off the ground. You need to ensure you aren’t growing too big too quickly otherwise the quality of your services might drop off. You need to ensure there is the demand for expansion. Most importantly of all, you need to find the money to finance it.
As you’ll already know from starting up your business, money doesn’t grow on trees, but there are a number of ways you secure the capital needed to drive your company to the next level.
Here are five ways to raise funds to expand your business.
If your startup was funded by yourself in the first place, then bootstrapping might be the way to go again. This, of course, depends largely on how much capital you need to push it to the next level, how much you’ve already invested and how much profit you are making.
There is a huge element of risk in bootstrapping as it’s your own money you are putting on the line, but if you believe in your business, then you should have the confidence to do so. It’s been a success up until now, so that faith is well placed.
Bootstrapping can also look seriously good down the line if and when further expansion is required and outside investors become involved. If an investor or lender sees just how much you’ve risked for your business, they’ll have much more faith in your product thanks to your own confidence in it. This will make them far more likely to trust that it represents a solid investment.
Apply for a loan
With an element of success already behind your business, banks will be much more likely to have the confidence in you to offer a loan in order to help pay for your expansion. Make sure you are aware of what you may be entitled to before you rely on this as a concrete option, though.
Most commonly, some factors a bank will consider will include that you’ve been in business for at least two years, you have solid annual revenues of $100,000 or more and that you as an individual have a good credit score. Companies such as Credit Sesame can help you learn more about your credit score as this review explains.
Make sure you’re fully prepared before applying for a business loan. You’ll need profit and loss statements, balance sheets, a cash flow statement as well as bank returns and indications of your personal financial position.
Ask friends and family
Your friends and close family will already be aware of what a success your business is, so they may well be willing to invest in helping it grow even further.
You do need to select the right people to ask, however. Ideally, you want those who understand what it is you are trying to achieve, have some idea of how business works and above all else, are aware that there are risks. The last thing you want is Uncle Max who you only see every Thanksgiving ploughing his life savings in on the expectation he is going to be richer than Bill Gates within six months.
Always make sure you agree on the form of funding as well. Too often, a friend or relative believes they are loaning money to be repaid when actually what you are offering is equity. Because we are so familiar with friends and family, it can be easy to forget that this is still a business deal and you do need to treat it as such, just in case there is a problem down the line.
Start a crowdfunding campaign
Crowdfunding is a relatively new way of raising capital, but it is one that can be extremely effective. Take the 3D printer company Formlabs for example. Formlabs raised over $3m through crowdfunding, which gave them the capital to able to realize their goal of putting into production affordable 3D printers to be sold to the public.
Now, we’re not saying that you are going to be as successful as Formlabs were, but it just shows what can be achieved if you have a product that people are interested in. If your startup is looking to expand, then presumably you have that product.
You can tap into your current client base to seek donations and ask them to spread the cause by word of mouth. You can even encourage people to invest by offering them future discounts and free gifts. Perhaps best of all, it gives a sense to those individuals who do donate that they are invested in your business, and that connection will make them more likely to use you in the future.
Find an angel investor
An angel investor is an individual with a net worth exceeding $1 million or an annual income of more than $200,000. Basically, they’ve got money. They’re also looking to invest money in the right sort of business.
That could be yours. Ever since tech startups such as Facebook, WhatsApp and Uber grew into some of the biggest companies on the planet, angel investors have been pouring money into new businesses in the hope of getting a slice of the pie of the next big thing.
If you’ve got a solid business plan that shows how you are aiming to grow your business, then they’ll be interested. Put together a great pitch which can capture their attention and imagination, and you’ll be well on the way to securing investment.
The best place to look for angel investors is either in your local area or in your industry. A successful local businessman should be looking to boost those working in their town or city while getting an expert on board can be invaluable in terms of adding to your company’s business acumen.