Funding: the small business’s nemesis
Business Consultants, Market Research, business plan
There is no doubt, as to how South African businesses especially startups struggle to raise funding for their projects. There are many reasons why this is so. For the sake of simplicity, we will classify our reasons as external and internal. External reasons are those factors that are outside the control of the entrepreneur or business. These stem from the external environment. Factors such as the poor performance of the global economy, the performance of the local economy and the continual plummeting of the rand against the greenback make funds especially from the private investors hard to come by. When the economic outlook is gloomy, the environment to the investor looks risky, it even goes riskier if one is to find oneself committing funds to an unproven idea by an unproven entrepreneur. Financial institutions consider small businesses high risk, and this is true because empirical evidence from the US indicates that of the 500 start-ups that enter the various industries in a year, less than 10 of them will make it to the fifth year. This represents a 2% survival and maybe success rate as well.
On the external factors again, the requirements that both the public and private funding institutions set are too stringent and at times impossible for many entrepreneurs. Many individuals and organizations still cannot raise the required collateral and the own contribution that is normally between 10% and 30% of the total finance required of the project. This leaves the entrepreneurs with no choice but let the ideas and the little work that they had done fizzle out.
Challenges of the entrepreneurs are also from within. Certain projects crafted by entrepreneurs are just not fundable. The goals and the model of the business or project are hardly clear in the eyes of the investor or funding institution. It is also true that some of the entrepreneurs lack the finances required to bring in professionals to assist in making their projects fundable. The following are some the things that are likely to impress the investor or funder; a well written business plan that is comprehensive and incisive, clear financial projections that show the forecasted profitability, liquidity and the general financial position of the organization in the short and long term future and the proof of the existence of the market for the goods or services to be offered. A market research report thus puts a funding application at another level compared to all other applicants. Against this, it is always wise for entrepreneurs to seek help of professionals in drafting business plans, carrying out market research and even handle the application process.
By Tony Chipedza, a business funding specialist at the Sure-Visions Group.
, Business Funding
, business plan
, Business Plans
, Financial Projections
, fundable projects
, Funding Institutions
, Funding proposals
, Market Research