Guide To Mastering Small Business Finances
The goal of any small business is to make money. Whether you sell goods or services, business needs to make a profit. And you can achieve this only if you manage your finances and cash flow carefully. Mismanagement of finances is a major reason of business failure in the early years.
An entrepreneur is always looking for funds to help grow his business. But with so many sources of financing available, it can be tough to navigate the process. Let’s explore avenues on finding and implementing the right financing solutions.
Banks and Non-banking finance institutions (NBFCs):
They are the tried and tested financiers for your small business. Their names may first pop up in your mind whenever you need loans for small business You need to share your business idea with them. Prepare a project report. Do a valuation. Then apply for a collateral-free loan. Inquire with traditional banks or non-banking financial companies (NBFCs) like Bajaj Finserv. They have many categories of small finance schemes for entrepreneurs. Choose the one that suits your business plan the most. Start by comparing different options. Look at terms, the business loan interest rate, and the lender’s reputation. Figure out if you can repay the business loan.
Dig deep into your savings. Or approach a friend or relative. With bootstrapping, you do not need to worry too much about loan interest rates. Friends and relatives may be more accommodating than a bank.
Multiple people who do not necessarily know the entrepreneur raise money for his business or project through a crowdfunding platform. The donors will get an equity stake or product or service related to the project. The value will depend on the amount donated.
Also Read : All You Need To Know About SME Loans In India
They are professional investors who may invest in your venture. But they may do so only if they are sure of earning good returns on their investments. Angel investors usually look to pick up equity in the new venture. They also double up as advisors for your business.
Venture Capitalists invest in companies that have long-term growth prospects and require certain amount of investments. They have the power to influence major decisions.
Incubators and accelerators:
In accelerator program there is a set timeframe in which companies spend anywhere from a few weeks to a few months working with a group of mentors to build their business and manage any problem areas. Startup incubators work with companies that are in the early stage of growth. In this program, an external management team manages an idea that was developed internally.
The Government of India has started an Rs. 10,000 crore start-up fund for budding entrepreneurs. Look up the Micro Units Development and Refinance Agency (MUDRA). It is an avenue for raising initial capital for your business. Once the government approves your business plan, you get a MUDRA card. Treat this as a special credit card. It allows you to buy raw materials for your business. There are three categories of financing available under MUDRA: Sishu, Kishor, and Tarun.
Having an idea for business is just the first step. Financing it is the real challenge. Ensure you educate yourself well about the various funding options available. Choose the one that suits your business and financial situation well.