4 Ways to Get Business Cash (Including Equity Crowdfunding)
One of the golden rules of business development is this:
Identify every constraint and do absolutely whatever it take to eliminate them.
And a common constraint is cash.
A need for cash in a business boils down to one of three situations:
- You have great potential growth but just don’t have the cashflow to support your interim needs
- You just didn’t start with enough cash to see you through to positive cash position
- Your business is never going to be profitable in its current form and you need radical change
The absolute worst thing you can do is to continue flogging the proverbial dead horse. So, if you are in position #3 (or consider you might be) then take a long hard think before you decide what to do.
Lets Start at the Beginning – What’s Your Plan
Whichever way you go, you need a plan – and its not a plan until it been documented. If the Plan is for internal purposes, then 2 pages approx is often enough. If you’re trying to raise debt or equity, then you need to add all the bells and whistles and you will usually need 5 pages+
4 Ways to Get Cash
- Generate More Sales Relative to Cost of Sales. This may sound obvious but its amazing how many people don’t think of it or don’t know how to do it. There are 2 big advantages of this approach (1) you don’t need to develop a mega business plan; and (2) you don’t need to give away part of your business or pay interest on a debt.
There are basically 3 ways to increase sales:
- Sell more quantity
- Sell the same quantity at a higher profit
- Sell more often (eg upsells to customers)
Despite the benefits of this approach, keep in mind that your growth is still limited to your current people and resources.
- A Revolution in Fundraising. Crowdfunding has revolutionised this space.
We can’t say it any better than this great article of March 2015 by Peter Diamandis:
- Debt. This is where you borrow money and pay it back with interest. The upside is that you’re not giving away part of your business. The downside is you need to pay the interest.
- Traditional Equity. The pros and cons of this are the opposite of equity.
A BIG mistake that many people make with equity is focusing too much on the downside (the equity they need to give away) and not enough on the upside (the benefit that the equity brings).
Remember that all business investment comes with a risk, so an investor deserves to be well rewarded for their risk taking.
- Do whatever it takes to eliminate all constraints on growth and success – including resources and/or cash
- Get clear on whether your business has potential – not just your own wishful thinking
- You’ve heard it many times before, if you don’t have a business plan, then develop one now – even if its just a 2 pager for internal purposes
- Decide on whether you need more cash and which of the 4 ways you will use
Disclaimer – this is general ideas only and should not be used as specific advice relating to your situation, in respect of which you should consult a professional advisor.