Raising money is one of those annoying hurdles that separate an aspiring entrepreneur from business greatness. It would just be easier if our ideas soared without money. But it just doesn't work that way: it takes money to make money. Get the unpleasant task of fundraising done and get on with building your business.
Set the startup budget
Before you go out to raise funds, you must figure out exactly how much money you'll need.
Different experts will offer different math, but my favourite startup budget calculation is:
- Capital costs plus six months' operating costs plus 10% contingency money.
For example, let's say you wanted to open a flower shop. Capital costs include all of those larger, one-time expenses like store renovations, permanent signage, refrigerated storage units, washing stations and point of sale (POS) terminals. Operating costs include "softer" and recurring expenses, such as rent, employee wages, advertising, office supplies, insurance, and Internet and telephone service.
Obtain actual quotes on these expenses, and, where possible, ask the vendor to include an expiry date. (Some vendors cannot guarantee a price past 60 or 90 days due to input cost fluctuations.)
Add up all of those numbers and add 10% more as a contingency budget. Why? Because you've likely missed some expenses or underestimated a few costs. Opening a business always costs more than we think.
Put your shiny new startup budget into your business plan. Keep copies of the vendor quotes. Ideally, you will have obtained quotes from three separate vendors for each budget item—it will demonstrate your respect for investor money. You're now ready to shop for funds.