Worker in vineyard cutting grapes after raising capital for business
Maximising cash flow

Raising capital as a small business

Whether you’re starting a small business or expanding an existing company, you’ll need the funds to do it. You might already have enough stored away, but in many cases you’ll need to raise capital to turn your ambition into a reality.

Raising capital means obtaining money from investors, venture capitalists or other sources to fund your business. And, given running out of money is a key reason why 60% of Australian small businesses fail, it should be a priority for SMEs. 

The basics of raising capital for business

Many people have an idea but lack the funds to realise that business concept. While you may be able to fund a portion of your business by yourself, starting and running a business can cost tens or hundreds of thousands.

Raising capital gives you enough funds to turn your dream into a reality.

Securing capital is a way of raising funds to finance your business. These funds can go into supporting the daily operations of your business, paying employee wages or realising your product concept.

There are generally two types of capital out there: debt and equity. Debt capital involves borrowing money and returning it, with interest. Meanwhile, equity capital means selling company stocks or shares in exchange for funding.

Different ways of raising capital for business

If you’re looking to raise funds for business, here are some of the most popular ways to do it:

  • Debt funding through small business loans from a financial institution, such as a bank.

  • Venture capital funds, run by individuals, groups of individuals, corporations or super funds.

  • Angel investment from angel investors who have an expertise in a certain industry and want to invest in it.

  • Crowdfunding and crowd-sourced funding, where large groups of people invest small amounts into a business. This is usually done in exchange for equity or a reward.

  • Bootstrapping a business using your own cash, and sustaining it through revenue.

  • Government funding grants, such as funding programs or tax incentive rebates.

  • Funding from family or friends.

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How to raise funds for business

Have a strong business plan

A business plan holds the strategy, vision and roadmap for your company. Investors, banks and government grants will always ask to see a business plan before investing funds.

Consider your vision statement, unique selling proposition, marketing and sales plan and your operational needs. Your business plan should also have a clear financial plan outlining cash flow, income and expenses.

Know how much you need — and ask for it

Before asking for funds, you need to know exactly how much you need to start or expand your business. This should be done in your business planning stage. Be sure to factor in the costs of production, salaries and operations, as well as marketing and sales costs

Once you have this number, ask for it. Many SMEs make the mistake of asking for less capital than they need, and end up unable to successfully execute their vision. A general rule of thumb is to plan for everything to take twice as long and cost twice as much. Prepare for the worst, and be sure to factor in a buffer for tough times.

Network, network, network

While you can cold call venture capital funds and attend pitching events, in most cases, the best way to raise capital is to build relationships with other like-minded people. Attend networking and start-up events and create a solid network of investors, executives, experts and industry leaders. You’ll never know when one of these can translate into an opportunity for capital.

Lastly, remember not to say ‘yes’ to just anyone. What may start out as a well-needed injection of cash can quickly turn sour if you don’t see eye-to-eye with your investors. Weigh each option carefully, and don’t be afraid to ask for more time if you need it.

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