Where do you get financing for your capital needs?
Now that you have determined the capital requirements, the question of financing arises. In the business plan, you must explain how you want to raise capital and what types of funding you want to use. Basically, you can finance your business with equity and / or debt.
Equity is the type of financing in which the capital belongs to the company – the equity holders are thus the owners of the company.
Debt, on the other hand, is a form of financing where capital is made available only for a limited period of time. For the provision of financing, lenders generally receive an interest and require repayment of the capital after an agreed period. Debtors are not involved in the company.
Financing start-ups without their own funds is not feasible on the one hand because no investor gives you money if you are not prepared to invest your own money. On the other hand, it does not make sense, because otherwise you are 100% dependent on third-party investors or you have to give away at least a large part of the company.
So you should clarify how much capital you can invest in your project. Usually it will be the case that you will mainly use your own capital and, if necessary, subsidies to finance the foundation. If you have successfully passed the start-up phase, it is generally easier to find additional equity investors.
In addition to funding from your own resources, you may also consider getting capital from your family and / or acquaintances. You may also find a business angel or, as the case may be, a venture capital firm that will provide you with money. Possibly. You can also get an incubator for your business model, or you can use the crowdfunding / crowd investing trend to finance your business idea. More information on equity financing can be found here.
Financing through debt capital
In addition to your own funds, you can also finance your company through debt capital. There are a number of debt financing options that are more specifically described in the field of debt and which you should consider. These include, in particular, micro-credit, private loans, the classic bank loan or subsidies. But also the issue of surety in connection with collateral may be relevant for you. When it comes to financing a short-term liquidity bottleneck, a current account credit can also be considered.
Please note that borrowing is only made available for a certain period of time, ie you have to worry about the refinancing at an early stage. The fact that you have to pay interest on borrowed capital and, if necessary, repay loans – which has a correspondingly negative effect on liquidity – must not be ignored.
Also, when securing funding, it is also important that you:
- finance long-term capital with a long-term loan (Golden Balance Rule)
- Obtain various financing offers to determine the most optimal and cost-effective way of financing
- have determined and can show a meaningful break even point
The golden accounting rule described above is very important for both small and large corporations – the key message is: finance long-term investments with long-term capital!
Alternatives to financing
In addition to the two forms of financing, equity and debt, you should also consider alternatives to financing. These include:
- Leasing: Leasing is particularly suitable for capital goods (eg machines, cars, etc.). The advantage of leasing is that you do not have to make a direct investment, but you can still use the leased property. For the use you pay a fee, the so-called leasing rate.
- Rent: Similar to the lease, you pay a monthly fee for use. Rent makes sense especially for large assets that you do not necessarily own (eg factory buildings).
- Funding programs: Use state-subsidized programs and benefit in part from interesting offers.
Optimal financing: ratio of equity / debt
Realistically, in the start-up phase, you will mainly use equity because it may be difficult to find lenders (except with appropriate collateral and / or guarantee). An exception to this are the support programs, which make it easier for you to get a loan. As your company matures, it becomes more and more important to ensure an efficient capital structure – in other words, to use a bit more leverage.
The financial crisis has shown that over-indebtedness can lead to problems. Our “Golden Rule” is therefore that a company should be externally funded to a maximum of 60% – but this is only our rule and depends heavily on the business model. Nevertheless, it is better in crisis situations, if one does not rely too heavily on lenders.
The goal is …
… that you show in your business plan how you want to ensure the financing for starting your business.
Describe what form of funding you have decided on and why and how the ratio between equity and debt should look. The aim should be that you present a well-designed financing concept that will convince both potential equity and debt investors.
The Financing section concludes the “Finance” part of the business plan and allows you to continue with the opportunity / risk analysis – the so-called SWOT analysis.
With the financing is often a possible business startup. Benefit from the funded start-up coaching for the preparation of the business plan and the securing of the financing – an experienced start-up coach will actively support you in your founding!
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