Start up Funding

Author: Youth 2 Youth.

So you have a great idea, but no money hey ?! Join the club ! This is the number one reason why many young people with great ideas never get to start their business - lack of start up funds. Below you will find some info on potential funding sources for your great ideas. But, we have also included some more innovative ideas on getting started that minimizes the amount of start up funds that you require.

The most important first step - after you have had the great idea - is to work out just how much it is going to cost to make the idea a reality. Start with working out the start-up costs ( like registering your business name, advertising, equipment etc ) or your establishment costs to be technical. Then look at how much the enterprise will cost to run on an ongoing basis, over at least 12 months if not 2 years, and how much the enterprise can potentially make over that same period from sales. Don't forget to include paying yourself a wage for your part in the business. This is called doing a cashflow projection. This will not only show you how much is needed to start and to run this business but also if you will be able to cover your costs with the revenue made.

You will find that when it is your idea and you want to do something about it, it will require you to finance much of the enterprise yourself, especially at the beginning. This is called self-financing or personal funds. Whether this is your savings from the last 10years worth of tooth-fairy money, or from your part time job it is most likely that you will have to use this hard-earned cash to get started.

Otherwise you may have to sell some of your prized possessions, otherwise known as selling your assets. As young people we often don't have a house or a car to sell so we have to look at other assets. Perhaps having a garage sale is a good start, where your bike, books, stuffed toy collection can be turned into cash. Remember not to part with your furniture or computer as you will need these !

What about friends and family as a form of start up funding ? You may have understanding parents who are willing to provide you with some funds to get started, or grandparents who are happy to finance your dreams. You may feel comfortable approaching some friends to pitch in to get you started. Make sure that you are asking for a business loan, that you will repay, and not handing over business equity or a piece of your business. To ensure this, as well as to minimize the risk of a conflict, be sure to have a written and signed agreement outlining the terms of the loan and the repayment agreement. Obviously the advantage here is no bank fees and interest rate on the loan, but you are putting your relationship with your friends and family in a precarious position - so beware.

The trusty credit card is sometimes a good source of start up funding , if used wisely. We have all heard the horror stories of young people with credit card debts that are getting out of control, even mobile phone bills for that matter. However, if you have a reasonable limit, commit yourself to paying it off each month it can be a useful way of attaining essential tools for your business start up. Of course you will have to apply for one at a bank, and apply for a limit so investigate all of the options with the banks ( considering interest rates, fly-buy advantages, payment options etc ) before deciding on the best for your circumstance. Don't be afraid to ask the banks as many questions as possible, no matter how small or silly they seem to you - plus these days you can just email your questions through to a bank, EASY ! Your credit card can then be used to purchase some of the stuff you need to get started, as outlined in your establishment budget that you would have done before you got your credit card ! From this point the money you make from selling your product or service will then help to grow your business and buy more things to keep it going.

A loan from a bank, building society or credit union is another option. This can be a little tough as a young person though as you often don't have any "collateral" or "assets" that can guarantee a loan - or basically you don't own anything that the bank could take from you if you can't repay your loan. Banks are becoming more entrepreneur friendly but they still have a long way to go. Check out "Bank biz loans" article to find out what information a bank requires when applying for a business loan.

If you have decided to set yourself up as a not-for-profit then there are many grants that are open for you to apply for. Most of them are available through the government organisations, but other non-government organisations offer them as well. A great place to start is www.grantslink.gov.au or www.bep.gov.au and into the state and commonwealth grant section. Be prepared for a rigorous application process when applying for a grant and then ongoing obligations to ensure you are using the funds for what you said you would. Also, it is easy to get into the trap of relying on your grants to keep you running as an enterprise - so what happens if that grant is not renewed ?? So, just ensure that you aim to run your enterprise as a sustainable entity and that you have thought of options and other ways of ensuring your continued operation, not just the grant.

If you have worked out that you need something in the vicinity of $500 000 to $20 million to start ( or growth capital for major product/market expansion ) then you have to start looking into venture capital. Venture capital is money or capital needed to start, grow or expand a business. It may come from government or private financing companies - but it always deals with high-end businesses that have high growth potential. Some of the government programs also place emphasis on research & development businesses: check out www.ausindustry.gov.au With venture capital you don't have to repay the money, but you are handing over equity (or a share ) in your business, so to the people providing you with the capital it is an investment and they expect to get a return on it - or thy expect your business to do so well that they will get their money back plus some more. More information can be sought from the Australian Venture Capital Association: www.avcal.com.au

Something very similar is business angels. These are often individuals or groups of individuals who have some money to spare and want to invest it directly into a business. It can be anything from a small $5000 to a few million dollars. There are many organizations that have been set up to match business angels with those needing funding eg: www.businessangels.com.au and www.abol.net/angels The terms of the agreement between investor and investee is often a little more flexible, and may involve the investor having a hands-on role in the business, or being on the board or in some way using their existing business skills and expertise to assist the new business.

Please note that all companies publicly seeking capital investment in Australia must comply with the ASIC ( Australian Securities and Investment Commission ) requirements for an approved prospectus. This can cost $500 000 or more.

Many options to get you started. Investigate them all to find the best fit for you and your new business idea and requirements. But remember to do that finance plan first - and make it part of a whole business plan that you do as with almost every one of these options they will require a plan that outlines how you intend on making money to either repay the loan or make good on the investment made by another in your business.

If you still feel that not one of these start-up funding ideas is for you, then check out our article on innovative start up ideas - doing it with little or no money.

'Copyright 2003 Youth 2 Youth'

Disclaimer: This article is for your information, but it may not apply to or be suitable for your situation, so seek professional advice. Youth 2 Youth cannot be held liable for anything resulting from how you use the information provided in this article.