Funding is one of the major challenges confronting businesses of all shapes and sizes in Nigeria and across the world.
Finance is the lifeblood of every business. Without adequate cash inflow, businesses would not be able to procure raw materials, convert them to finished products, market or distribute the finished products and even pay their employees.
As a result of this, many financial institutions have sprung up to meet the financial needs of businesses. Once dominated by commercial banks, Nigeria’s financial services industry and business funding scene now boast of other institutions such as venture capital firms, private equity firms, fintechs and crowdfunding platforms. This highlights the maturity of the industry in the country and gives entrepreneurs and business managers a variety of funding options for their enterprises.
Despite this development, many businesses, especially startups and SMEs, are still unable to effectively raise capital to remain a going concern – or even take off in the first place. This is partly due to the stringent measures put in place by these fund providers to ensure that their limited capital is made available to organisations and invested in projects that will theoretically guarantee the best returns.
Unfortunately, many organizations, especially SMEs, lack the capacity to scale through these hurdles because of their weak structures and the managerial inexperience of their founders and operators. Listed below are some strategies that early-stage entrepreneurs and business managers can adopt to make their businesses more attractive to financiers.
The Preliminary Steps
1. Write down your business plan: The emphasis here is on “write.” It is not enough to have your business plan in your head; you also have to write it down somewhere. As we all know, information stored in memory can become fuzzy over time. Writing it down will prevent this and also make it easier for you to fine-tune your ideas and plans anytime the need arises.
2. Register your business with the Corporate Affairs Commission (CAC) and other relevant bodies.
3. Open a business bank account: Running a business with a personal or individual bank account is one of the most common business management infractions in Nigeria. In spite of the numerous policies put in place by the government and the business-friendly account products rolled out by commercial banks to discourage this, many entrepreneurs still run their businesses with their personal accounts, mostly to evade taxes and, sometimes, for administrative convenience. Doing this will make it difficult for investors to figure out how well your business is performing because your business finance will become muddled up with your personal finance.
4. Build an online presence for your business to expand its reach and make it easier for your target audience to connect with you from anywhere in the world.
5. Acquire sound accounting and financial management skills or hire a competent accountant or financial manager: Most early-stage entrepreneurs are jacks of all trades, performing varying functions as their companies strive to gain traction. The finance function of business management is one that must not be joked with. For starters, investors will assess your company’s financial health before committing their funds to it. A financial manager or accountant or the sound knowledge of financial management and accounting will help you to properly allocate financial resources in your company for peak profitability.
6. Get the right co-founder(s) and/or management team: If you are seeking a big-ticket investment, it is important that you get the right management team on board. Investors want to be assured that there is more to your business than just you and that the company will continue to exist even if you exit. Get a co-founder(s) or management team that will complement your skills and experience. For instance, if you are good at software development, but bad at business management, get a co-founder who is good at business management.
7. Determine your exact funding need: You can do this by projecting your business’ short-to-medium-term financial performance, which is also referred to as financial forecasting.
8. Know the types of funding available:
Debt financing – Debt financing is what readily comes to mind when most entrepreneurs think of funding. Debt capital is any money obtained that must be repaid, usually with an interest, at an agreed later date or interval. It is most commonly offered by commercial and microfinance banks. Debt capital is suitable for businesses with financial traction and collateral. It is not suitable for early-stage businesses or businesses with insufficient revenues and collateral.