Starting or expanding a business is an exciting endeavour. Whether you’re looking to expand to a new geographical area, add a revenue stream or expand your existing operations, raising the right capital can help you make your dreams a reality. But raising money can be challenging. Every business has specific needs, and you should aim to raise capital in a way that best fits the business’ vision. As a business owner, there are several ways to access the funds you need to expand your business.

Before you raise capital

It can be exciting to jump into the process. But there are several things to consider before raising capital for your business.

Understand the types of financing

There are two broad categories of financing: debt financing and equity financing. Debt financing, including loans and mortgages. Debt financing is an option that allows you to maintain control of your business. However, debt typically comes with regular payments, so you need to have the ability to generate cash to pay them. Taking on more debt than you can afford to pay back can be detrimental to your business cash flow. Equity financing does not have regular payments but requires selling part of a business. The type of funding mechanism you choose should reflect your long-term business goals and visions.

Have a plan for the money

If you are looking for funds for a specific part of your business, being upfront with lenders and investors can be a helpful tactic in raising the funds you need. Potential lenders and investors may be more comfortable with your plan if they can attach it to specific costs like research and development or purchasing specialized equipment. Some financing options, such as grants and subsidies, are often only advanced for particular purposes. If your needs fit the requirements of these grants, it can be valuable to use them.

Have a clean set of financial statements

Having accurate and organized financial statements is essential to obtaining financing. Investors, lenders, and other stakeholders will want to know your business standing before making investment decisions. Your current and past financial statements will provide a reliable starting point for potential investors and lenders about your business financials. These will also help you create updated projections for the future based on market trends and research.

Plan ahead

Even if your business does not need money right now, it can be worthwhile to understand your options before you need them. For example, your business might be seasonal with inventory requirements for the holidays, plan to have funds lined up for purchasing products or supplies in time. Building relationships with potential investors or lenders can also help. That way, you can contact them when the time is right.

Seek professional advice

Investments and loans will have terms and conditions attached to them. Professionals can help clarify the duration of your contract or its impact on your business or offer a new perspective. Seek advice from tax professionals, accountants, lawyers or other financial professionals to ensure that any deal you make is right for you and your business.

Where to raise capital for your business?

Personal Funds

Using your funds is a great way to finance your business, especially if you are just ing and are a first-time business owner. Some business owners may prefer this route because it gives them total control over all financing decisions of your business. Going this route at first may also be helpful to showing future lenders and investors that you “have skin in the game.”

Access your network

Many business owners turn to friends and family to provide the initial stage of capital for their business. You can even consider professional contacts who have been supportive of your endeavours. They may understand your business model better than a potential investor and offer support through mentorship, advice or even additional funds. Navigating personal and professional relationships can be tricky. If you choose this route, discuss and document the terms of any investments or loans. Seeking professional advice can be helpful to ensure that all parties understand any terms of loans or equity so there are no conflicts in the future.

Loans and Credit

Taking out a bank loan or accessing a line of credit is one of the most common ways to finance a business. Business owners can borrow from banks, government-backed agencies, and online lenders. When applying for a loan, it’s important to research and compares the terms between different lenders to get the best deal. Banks will likely ask you to share your business plan, financial forecasts, credit rating, and other documents. They may even ask for collateral as a guarantee for repayment. Bank loans are often difficult for first-time or new business owners. However, having an established business or a business history can help make a stronger case for your business loan.

Investors

Inviting investors to partner with you can be an excellent way to raise capital for your business. Investors usually expect a return on their investment, so be prepared to negotiate terms and possibly give up some control of the company in exchange for funds. Professional investors range from venture capitalists with aggressive return targets to high-net-worth angel investors looking to invest in particular areas. Experienced investors can often offer more than just funds; they can be strategic partners who can access their networks or help you with professional services such as support sales and marketing your business.

Grants and Subsidies

Grants and subsidies can be a great way to access capital, often without paying any of it back. Government agencies, non-profits, and other organizations often offer grants or subsidies for businesses in specific industries or business owners in particular demographics. However, grants often have restrictions attached, so read the fine print before accepting any funding.

CONSULT THE BUSINESS ADVISORS EDELKOORT SMETHURST CPAS LLP IN BURLINGTON FOR EXPERT ADVICE

Talk to a professional business consultant to explore various financing options. The advisors and industry experts at Edelkoort Smethurst CPAs LLP can provide the support and advice you need to be tailored for your business. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with business consultancy, contact us online or by telephone at 905-517-2297.