Raising business startup funding for your venture is difficult as you need to convince investors about the viability of your idea. Most often, entrepreneurs do not take into account the hidden costs of raising money. You’re probably raising an eyebrow too, as we speak.
Don’t be under the impression that the cost of raising money is always nominal. An estimate of the true costs will help you plan your financing options better. This article talks about the economics of getting business startup funding.
As an entrepreneur, you do understand the need for a business plan to hold water with investors. Therefore, a solid business plan is a must, and this can take one to three months to write. However, do not attempt to write it only by yourself. Seek expert guidance. You might also choose to use business planning software to help you along. Depending on the complexity of the exercise, putting together a business plan can set you back by anything between US$ 5,000 and US$ 25,000.
Every business has innumerable aspects, and it is simply not feasible for one person to deal with all of them. It’s quite likely that you will need external advisers to help you with the funding process. The only problem is that they also cost a bunch of money. One way of compensating advisers is to offer to pay them in cash for the first three to six months of their involvement. After you get your business startup funding, if they are still positive about working with you, they can agree to work for a stake in your company. The cost of two to three advisers consulting with you for three to six months is somewhere between US$ 7,500 and US$ 15,000. This is exclusive of the cost of any stock you offer them.
Publicity and business go hand in hand; after all, you want your investors to notice you. Hence, exposure is a must. Either find a way to get the major news networks to do a prime-time story on your business, or spend money on a well-etched PR plan. Again, none of this comes cheap if you want a good amount of business startup funding.
You have a new idea. So, who doesn’t? You won’t get a red cent from your investors until you prove there’s a market for it. This might involve market research, clinical trials or customer feedback exercises. And it can cost you as much as US$ 5,000 to assemble and analyze just one qualitative focus group.
Legal and Accounting Fees:
Every business has the need for good legal and accounting advice, all of which come at a price. And if you’re planning to raise money through an IPO, you’ll need loads of it. Then there’s the paperwork that must be dealt with.
Books like “Fund Raising: The Guide to Raising Money from Private Sources” are of help too. Remember, if raising money isn’t your area of expertise, the mistakes you’re bound to make will only add to the expense. Hopefully, this article has helped you understand and manage the hidden costs associated with getting business start-up funding.