There are many ways to make money for entrepreneurs. Which one is best for your business? Are you a developer (startup) looking for money? You've come to the right place!
Below is a list of 13 sources of income for entrepreneurs. Some are involved in startups, while others are important for mature, fast-growing businesses. Regardless, all the options should give you plenty of inspiration for your next investment!
Every financial system requires a professional financial planner.
Financial Sources
Business financing from the necessary sources either for starting the business, i.e. to demonstrate the strength of the idea (seed capital - 80%), to operate the business (sources - 60%) or for the day - and. -day trading activity, business expansion or IPO (expansion capital - 30-50%).
There are two options or sources of business financing: equity and debt. Both serve as sources of income for businesses. All sources of income fall under one or the other of these two options.
Sources of Financing Business: A Comprehensive Study
Understand the sources of project funding-
Debt: It is cheaper since the long-term interest on loans is lower than the returns on investments in the stock market. It also provides tax shields. However, the debt always needs to be repaid. Lenders tend to be conservative and demanding.
Equity: The different sources of capital for equity investor’s are-
i. Inside Equity (founders, family, friends),
II. Angel Private Equity
III. Financial risk
IV. Society provides.
13 Sources of Finance-Different ways to raise money for startups are:
1. Founders
Description: Do you have any money left over? Have you earned a good amount of money? Why not apply it to your own business! However, you don't have to invest in financial matters. If a founder or partner spends their time helping you start your business while you do their own work, that's money too.
Or what about a manufacturer that provides industrial, mechanical or technical capabilities? All these are sources of investment. Paying you no salary for a while is also an option.
When you choose this funding Source: Developers can invest in their own business at any time. However, you often see this happening when the business is just starting out. When a business is established, in most cases, there is no income or external funding, but there are usually start-up costs to cover.
In terms of balance, you can withdraw (as long as your bank account allows). What are the benefits of this type of investment? It can be seen as a good thing by an outside investor and the founder also has "skin in the game". Why should anyone take the risk of investing in your business if you are willing to take the risk yourself?
2. The 3Fs: Family, Friends and Fools
Explanation: Before you start approaching professional investors, it can be useful to try to generate funds in your network of family, friends and fools. These are usually people in your family or social network who are close to you and investors because they trust your opinion or you as a person / entrepreneur. Since these people are not professional investors, you should not expect a professional analysis of your company's plan from such an investor.
When to choose a financing source: This type of financing is often needed to cover the costs of creating a new business or to fill the gap in the first round of (pre)coin financing.
The advantage of this type of money is that it is a quick and cheap way to get money, especially considering the risk that 3F takes (which they don't always know themselves: that's why they are "stupid").
Most of the time, the money invested in this type of investment is not very large and is repaid in the form of a loan (with or even without interest) or is invested in exchange for a small amount of money. and companies. When money is invested, the percentage of shares and the level of expertise increases, then it is called angel investment.
3. Angels/
Explanation: Angels or private investors are experienced entrepreneurs who have capital (usually from abandoned businesses) and invest it in new projects to help entrepreneurs and others to succeed in their business. Angel investment starts around $50,000 and can reach (or more) $1 million, as angels sometimes invest in groups.
When to choose this funding source: Go for an angel if you are looking for seed funding within the mentioned range.
Angel investors often provide "capital" not only money, but also networking opportunities and knowledge in different companies. Try to find an angel that fits your company in terms of experience and industry knowledge. Angels find new investment opportunities through their network, but (for example) through platforms like Angel List, Crunchbase and f6s.
4. Crowdfunding
Description: These days, it's hard to imagine that the crowd didn't exist. With crowd funding, the "crowd" receives funds for the financial needs of the company. Most of the time, a lot of money is made through online platforms where investors are allowed to invest in one part of the platform and in the other part of the platform many people invest less money to meet the investor's need for investment.
When choosing this funding source: In general, there are three types of crowd funding: loans, pre-orders/grants and adjustable-rate loans. Are you looking for a loan, but having trouble getting one from the bank because your risk profile is high?
Then try to borrow money. Do you have a prototype and want to test the product / market fit, but you cannot invest in the production / delivery of the first product of the real product?
So opt for first order/offer. Notable examples of platforms that offer these types of crowd funding are Kickstarter and Indiegogo.
They are suitable for products, projects or applications aimed at consumer markets and have strong design elements.
Leasing has the following advantages:
1) No shares are given,
2) Price negotiations are excluded until the value of the transaction can be clearly determined.
3) It is a simple, fast and cheaper than the actual product transfer.
As those who invest through crowdfunding platforms are not always professional investors, crowdfunding is suitable for projects that are not complicated or technical and the public understands the application (this is why it is called "crowd funding"). Think, for example, of consumer goods. There are also targeted crowdfunding platforms, so keep that in mind when choosing.
For example, the Dutch crowdfunding platform One planet crowd focuses on sustainable projects with a positive impact.
5. Subsidies
Description: There are a large number of budget/finance plans and grants. The purpose of the grant/initiative is usually to stimulate business, innovation/R&D or economic growth in a particular geographic area. This is why each region, each country and even, for example, the entire European Union has its own support.
When to choose a funding source: ALWAYS, we can be short on this. Help is important in almost any business process, from start-up to business, from freelancer to listed company. As mentioned earlier, many grants are focused only on one geographic area, and often, they are reserved for specific areas.
Therefore, it is important to find the right offer for your business. Keep in mind that processing and reporting requirements often apply to applications and grants. You must be able to confirm the salary for which you are requesting assistance and, in some cases, it is mandatory that this confirmation will be verified.
6. Venture capital/private equity
Explanation: Private equity is the collective name for professional investment firms that invest in companies that are not publicly traded. Venture Capital (VC) is a type of equity that focuses specifically (from the investor's point of view) on risky investments in startup companies.
People often talk about private equity when investing in a large company that is short-lived. Venture Capital, on the other hand, involves investing in the capital of growing companies.
Investors have a sum of money (e.g. 100 million USD/EUR) which will be invested over a certain period of time (e.g. 10 years) in a certain number of companies with a risk profile different to expand risk across the portfolio. The aim is to sell the product after a few years for some return / profit.
When to choose this funding source: Venture capital is suitable for companies that have passed the "seed stage" and are looking for a series A or series B. Therefore, this type of financing is to help companies grow faster than they would if they were growing, for example if the company wants to move internationally.
Capital companies invest between 500,000 and 20 million dollars/euro. In order to receive funding from VC, the product/market of the company must be proven, and the amount of continuous revenue must have been there for many years.
However, there are also seed capital investors (starting with a seed capital of about $200,000) who provide seed capital to companies that do not meet the criteria stated in up.
The advantage of venture capitalists is that they can support multiple pitches for the same company, while angel or other early stage investors are unable to do so. Investors often have a focus on the sector and good knowledge / network within the sector.
7. Debt Financing: The Bank
Explanation: Although there are banks that have established capital funds, they tend to be more risky, for example, angel investors, seed investors and ordinary investors. This doesn't mean that banks don't invest money for entrepreneurs, quite the contrary!
However, they can invest in small companies and small companies, in companies with low risk (more than a start-up, for example) and when the company can give a guarantee. For start-ups that do not fit into the limits of business capital, so it may be difficult to get money from banks.
When choosing a source of income: As mentioned, banks are generally less risky than, for example, capital investors and angels. However, if you can offer a contract, a bank is a good option. Or if you are looking for working capital funds, stock funds or funds to cover investments in buildings / machinery, banks are also a good option to consider.
Businesses that generate a stable cash flow and grow organically for many years (and are therefore less risky) can also go into the bank. One of the biggest advantages of debt financing is that you don't have to divest part of your business in terms of equity, which means that in the end it can be a cheaper way to finance than, for example, getting cash in hand an angel. Investor or venture capitalist.
8. Factoring
Explanation: In short, factoring is a way to generate operating income by reducing the size of accounts receivable. Example: if you send an invoice to a customer, but it takes them 60 days to pay, then you can decide to "sell" this invoice to a manufacturing company ( against some payment, of course).
The manufacturer will pay the invoice (or give you a loan) so you don't have to wait 60 days for the customer to pay the invoice. Manufacturing companies can also run the risk of a customer not paying at all.
When choosing a source of income: First of all, it goes without saying that you must have customers in order to qualify for production. If you don't have paying customers, manufacturing is not an option. If you have customers, creating something can be very useful if you have to overcome long payment times.
Do you have large companies as customers? If so, paying off the debt can take a while and there's usually not much you can do about it. To maintain a working capital, creating something can be a good solution. Is a managing customer account costing you a lot of time and effort?
Do you often have bad debt? Then factoring can also be a reason.
9. Leasing
Description: Do you need to invest heavily in equipment such as computers and/or machines? Why not rent them instead of buying them? By borrowing assets, businesses can spread debt over a longer period of time instead of paying the full amount for an investment when they decide to buy something valuable.
When choosing a source of financing: When the business is making a lot of money, that is, depending on the use of assets (sometimes expensive), such as machinery, borrowing money can be a solution.
10. Suppliers
Explanation: Is your business dependent on its supplier? Try to negotiate good payment terms with suppliers. If your customers have long payment terms, for example, you can also try to agree on long payment terms with your suppliers so that you don't have to worry about your working capital. On the other hand, you can also try to negotiate a discount with you if you pay your suppliers promptly.
When choosing a financing source: Choose this type of financing if you have a good relationship with your suppliers or if you have a good conversation with them (for example, if you are a large / important customer).
11. Initial Coin Offering
Description: For an initial coin offering (ICO), companies usually write a white paper to introduce a business idea and ask the public to support the idea using bitcoin and/or altcoins (other crypto currencies).
In return, the investor receives an altcoin that is newly created by the company during the ICO. Often, the newly created altcoin is the main business activity of the company, so it is mined in a way to increase its value. Once this altcoin becomes tradable, investors can sell it (and expect to make a profit). So an ICO is very similar to an IPO, but uses cryptocurrency instead of shares that can be converted into "regular money".
When you choose the source of this funding: It is possible to do an ICO as a non-crypto company, but now most of the companies that do the ICO are blockchain / cryptocurrency companies. This is because the new altcoins that are created by ICOs often have a role in the industry that increases its value. The fact that the value of a new altcoin will really increase is what attracts investors.
12. Initial Public Offering
Description: The Bible of Finance: Initial Public Offerings (IPOs)! An IPO is a public listing of a company, which means that it is the first time a company offers its shares to the public (instead of individuals, investors or corporations).
This means that almost anyone in the world (individuals or corporate investors) can invest in companies by buying shares in the same value. Before an IPO, a company is private, which means it usually has a number of investors investing in startups or development capital. Think of inventors, angels and investors for example.
When choosing this funding source: In order for the IPO to be successful, the company must be able to demonstrate years of strong growth, and its strategy often includes network effects / scalability. Growth can be defined in many ways.
This can be turnover or profit but also, for example, the number of customers or active employees. For example, spottily has been a loss-making company for many years, but it is growing significantly in terms of revenue and users.
A company must also demonstrate understanding and confidence that growth will continue in the coming years, because it must generate public trust and the value of shares (purchased by the public) at the time of IPO) will increase in future accordingly and they can get a return on their investment.
For investors who already own shares in the company before the IPO, a public listing can be attractive (money). An IPO should not be underestimated, however: it is an expensive process and involves many public reporting requirements imposed by strict government regulations.
13. Revenue Based Financing
Explanation: Income is a financial system in which the investor provides money for the start-up and in return the investor will receive a percentage (e.g between 2% and 5%) of the money (in the future) ) is obtained from the beginning. Interest payments based on future income are usually two or three times higher than the original loan amount.
When to choose this fund: This type of fund is usually offered during (before) the seed.
The benefits of this type of funding for startups are as follows:
• Founders will not contribute equity, which means they will not lose their share.
• Unlike a normal bank loan, interest payments for a loan are based on income, which means that if the income decreases, the debt requirement also decreases. This reduces the risk of cash flow problems and insolvency.
If businessmen face business failure and the bank balance is below the minimum limit, they can use their excess in the bank itself as a source of relief. These temporary financial centers help to deal with seasonal fluctuations and short-term financial problems. High interest rates for bank loans. However, bank loans are not flexible.
Sources of Long Term Financing
The list of long-term sources of income is as follows:
• Equity shares
• Preference shares
• Profit plowing back
• Lease financing
• Foreign capital
• Term loans
• Debentures
• Financial institutions
• Debt capital
• Internal sources
Sources of Short Term Finances
A list of sources of short term finances has the following options:
• Trade credit
• Overdrafts from banks
• Secured Loans
• Commercial paper
Finally, the startup can choose a public offering - the most important of all money or wealth. It is also a form of capital and is the best choice for startups looking to get off the ground. There are many types of financing for entrepreneurs.
Therefore, it won't hurt to research the different types available. This will help you choose a source of income that will suit your situation and level of business. In turn, this increases the chances that you will be successful in raising money. Need help finding the best place to make money?
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