Funding (part 1)

 

Comes Friday – Comes Funding Part 1 as promised!

Ok so in the previous article I have LIGHTLY touched on the general idea of funding and what you should bear in mind. Also listed most common ways to fund your own idea.

 

Lets us take a look at the first two items on my list:

  • Personal Investment – aka Bootstrapping + Friends & Family (part 1)

Both methods are extremely different from each other and bear varying degrees of liability and responsibility. All means are good but subject to your circumstance and financial situation – not all will be applicable and cost-efficient.

 

BOOTSTRAPPING

Most commonly you will come across this term in Economics and Statistics Studies. I will not be able to explain it’s valued and meaning better then WIKI  does it already.

But we are not here for Economics and Statistics – we are here for £$€ BUSINESS £$€

In business terms, Bootstrapping encompasses the Entrepreneur who does not want to commit himself to any outside sources of funding. He is happy where he is, be it he possesses large or small savings – he is willing to take the company off the ground with only financial means on his hands. I am talking about starting your company without the need to apply for a loan to buy-in your initial stock, without the necessity to seek a cash lump-sum to pre-pay annual membership subscription of a ‘society’, no must-do compulsory purchase of a company car or a ‘fleet of vans’ or anything of that sort. It is all about you starting the company of your own money and building it from strength to strength of the revenue flow to come. I, personally, am currently in the process of opening a Community Interest Company using Bootstrapping method myself, actually. My entire business model is built around revenue income to come from the clients and expenses are going to be kept to the minimum, with the greater focus on advertising and marketing budget, rather than gold-plated service of diamond-encrusted chairs and merchandised stationary.

 

Pros

  • Pretty simple, you are not tied into any contractual obligation of mortgage or loan repayment. You don’t owe any money to the third party and operate purely within your own set budget.
  • You are able to control your own costs and commit only to the necessary spending
  • You are able to pause your project until further savings to come as you don’t face monthly re-payment or accumulating interest charges.
  • In case it goes “tits up” you won’t be left with bad credit history.

 

Cons

  • In the worst case scenario – what you will invest/spend is what you will lose but it might be because you have used up all of your capital and have got a negative trade history – you might find it difficult to apply for an outside loan.
  • You are able to pause your project until further savings to come as you don’t face monthly re-payment or accumulating interest charges.
  • Regardless of how top-notch your research was – you might still incur the unforeseen and unexpected expense. Hence if you personally allocated budget is limited to £1000 and your unforeseen compulsory expense goes beyond that point – you will either have to look for alternative sources.

 

AND that’s where FRIENDS and FAMILY come in handy!

Friends and Family

“Hello mate, we have not spoken for 9 years and I know nothing about your life because I frankly don’t care, but I hope you can lend me £5000 as we used to be friends!”

“Hello grandma, I know grandpa past away just recently and I could not make it to his funeral, as I went on holidays, but he left you some savings, can you help me with funding my new business, as you don’t need that much money yourself, do you?”

I did come across these types of clients before – not an ideal way to approach someone for a financial help for sure.

But it is what it is. Friends and Family do come in handy if you are blessed with good social and hereditary connections. It works pretty much in the same way as ‘personal savings’ but this time it is ‘personal savings of others’.

You can approach your loved ones for a reasonable assistance. That way you might not even spend a penny to fund your idea as others will do it for you. The approach varies and if you feel confident about your relatives – get on with it. Sometimes you might need just these extra £1000 to cover your admin fees or registration costs to get started.

 

Pros

  • You don’t spend a penny and use somebody else monies.
  • You are under no obligation or expectation to return on investment within a set time period of time.
  • Sweet top-up which, if done through verbal means and in cash – cannot be tracked and legally recovered unless documented.
  • The relative who has contributed might not expect you to re-pay this money at all and mitigate it down as a ‘gift’ or they might just pass away due to age or external factors.

No person – no problem, as some might say.

 

Cons

  • You are in ‘deep hole’ if you fall out with your ‘related-funder’ and he/she demands his share of investment repaid back today and now. It will ruin your budget and might open up a black-hole in your finances which unless plugged in quickly – might ruin your chances of success.
  • If it is documented accordingly you will be liable to re-pay within deadlines, as if you owned it to a third party and if you don’t you risk to ruin your relationship with your friend or a family member forever. I always segregate relationship and business and being careful about people. As when money involved – unexpected reactions arise.

Money change people

  • You will not be able to build up your credit score if you have never gone into managed debt. Meaning that in the future years, if you would want to apply for a loan – there will be more checks on your than somebody who is covered in debt but commits to regular payments not missing a single month – building up their credit rate to a positive level.
  • Depending on the character of your ‘related-funder’ you might end up in a ‘moral debt’ FOREVER. There are people who by giving you £10 for a taxi fee to the job interview will hold you in a moral debt until your last day.

“If it would not be down to that taxi journey 25 years ago, which, by the way, I have paid for you, you would not get the milk-stacker job at Tesco and therefore would not be able to become the Prime Minister now!”

But it neither of the above is answering your wants or you simply do not have the wealth of relatives then you will be forced to search for money outside of your circle of existence.

Thats where FUNDING PART 2 comes in

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