Business Funding: How to Self-Fund your Business through its Lifecycle
Business owners and entrepreneurs often express the difficulty of accessing business funding as a key challenge. And yet, 87% of South African businesses are self-funded, with the majority of established businesses never pursuing funding. But, how can you self-fund your business through its lifecycle, and secure your retirement? On The Money Show with Bruce Whitfield, Pavlo Phitidis set down a plan for startup, acceleration, and exiting, business owners to get this right:
Funding a start up
The business you want to start will be significantly different to the one you can afford to start. As an aspiring business owner, you must build off your asset stack to get started. Instead of trying to pursue small business funding to finance the company you want to start, shift how you enter the industry with a view that, over time, once you have built your asset stack, you will be equipped to access the funding you need.
Start by getting a job in the sector you want to build a business in. For example, if you’re keen to start a business that supplies equipment to hospitals, get a job in a hospital. Through this, you’ll gain close-up experience of the sector, be able to ask questions, and learn more about the industry you aim to be part of. You’ll also build credibility, and your personal network of contacts, and possible client leads, for your future business. Over the course of the 3 to 5 years this’ll take, you’ll become a specialist in a particular niche of the industry and become equipped to consult to other companies or organisations in the same sector. Thereafter, once you leave your job, you’ll be able to secure clients through the network you’ve created and curated over time.
Your asset stack will now include knowledge and understanding of the sector, relationships, and connections, reputation, and savings, all of which will help you start a business with the momentum of 5 years’ experience behind you. This is more valuable than any level of funding you may have wanted before you started.
Funding a growing business
This begins with you building an Asset of Value. This means that you have, and are, constantly building and implementing an effective system of delivery, operated by the right people, doing the right thing, at the right time. This creates time for you and gives you the information you need to track the progress of your business. An Asset of Value is supported by a growth plan, and the data you obtain tracks your business’ progress through that plan.
Now that you can identify where in your growth plan you are, should you be likely to generate a profit in this financial year, invest ahead, and bring planned investments for next year into this year to reduce your profit. In a growing business, this often takes the shape of people, software, space, or similar resources, all of which are expensed through the income statement, and reduce your tax in this current year. The net result is that you self-funded that investment to the value of 28% of your expected profit in this year.
In addition, your track record, your ability to measure performance, and your growth plan builds confidence in deals you may strike with suppliers and customers. These deals go further to fund investment activities in your business. For example, if you develop a piece of technology, demonstrate to your tech service provider how this will increase revenue/save costs and let them share in the upside for a premium return.
Funding your retirement
To secure and fund a comfortable retirement, you’ll need to have built that Asset of Value. There are few other options other than management buy-outs and succession plans. It’s for this reason that I think it’s imperative to, today, begin building your Asset of Value. Don’t leave it out, because time is the one thing you can never get back.
Building an Asset of Value will enable you to self-fund your business through its lifecycle. Aurik can help.