March is all about finances and taxes and how better to start the month off than with a discussion on how to find the funds for your new or growing business.  

Before you can find the funds for your business you must first determine how much you need. Most lenders, investors and even grantors will require a business plan with financials to better understand what is required to run your business. So do your research. Estimate both your start-up and ongoing costs. Call potential suppliers and get accurate quotes. Figure out whether this is a business you can afford to be in – ideally before you enter it.  

Pilar Galiana, Founder of Ella Says, a digital planning and project management shop headquartered in Ontario, knows researching costs can be a tedious process but believes it’s one that pays off. 

“For me my hard costs were minimal,” she says. “The big piece was potential lack of salary. I did an analysis of our [family’s] spending, we set a new budget, cut back severely, met with a financial planner and met with the bank. It wasn't difficult. It was time consuming and a bit of a wake-up call to see where you are spending your money.” 

Doing a cost analysis is a step many eager and enthusiastic entrepreneurs tend to skip. To those who discount the importance of this step, Pilar cautions, “I think going in with your eyes open is important. Amongst other things, the research helped me understand how much I need to charge and that will definitely impact my long term success.” 

Once you’ve got a firm handle on how much it will cost to run your business, then you can explore the five various financing options available: 

Personal sources: These include your personal savings and assets that you can contribute to the business. If you haven’t started yet, consider postponing the launch of your business until you have saved an adequate cash cushion to support yourself in the early months and years of your business. Pilar worked hard to secure a contract to launch her business before quitting her day-job. Had that contract not worked out, however, she would have been financially prepared as she had already significantly reduced her personal expenses and put aside savings to help finance her business and support her family during start-up. 

Bootstrapping: Bootstrapping is basically about keeping your costs low and spending in check through both the start-up and early stages of your business. Your greatest resource here is creativity. Buy your computer second-hand, shop on Craigslist, work from home, barter your services and hire interns. Look at every expense you’ve identified and use your creativity and ingenuity to brainstorm a low-cost way to cover it.  

Loans: Loans are money provided for a fee (interest) where the entrepreneur needs to pay back the interest and principal within a specified time frame. Informal sources of loans include your friends and family and are worth tapping into. Richard Branson, Founder of Virgin, borrowed money from his aunt during his early entrepreneurial career and the loan helped him overcome a difficult period when the banks weren’t willing to lend to him.  

Formal channels include private banks (Scotiabank and RBC are particularly active in the small business market) and the Business Development Bank of Canada (BDC), the government’s bank that lends money to entrepreneurs. One key loan program available to all Canadian entrepreneurs is the Canadian Small Business Financing Program. This program is guaranteed by the government but administered by the major banks so ask your banker about it next time you meet with her. 

Grants/Donations: What could be better than money with no strings attached; money you don’t have to pay back?! As with loans, there are both informal and formal sources of grants and donations. Again, informal sources include friends and family. Look at every item on your expense list. Do you have friends or family who might be able to contribute some old bake sheets for your cookie business? Or can you ask for cash for your birthday this year instead of a new sweater?  

Formal grant programs are few and far between but here are two worth mentioning:

Leadership Grants Association: A non-profit association providing non-repayable grants of up to $100,000 to Canadian entrepreneurs. 

National Research Council’s Industry Research Assistance Program: Provides non-repayable contributions to Canadian small businesses interested in growing by using technology to commercialize services, products and processes in either Canada or abroad. 

Equity: Equity investors provide funds in exchange for ownership in your company. You can find investors through both informal networks (leverage your friends and family and any wealthy or generous contacts they may have) and formal networks. For the latter, you can tap into either angel investors – wealthy individuals keen to invest in start-up and early growth companies – or venture capital funds which invest in early-growth companies on behalf of their clients.  

In general, angel and VC investors invest in high-growth industries including technology, biotech and alternative energy but many invest outside these industries as well. Check out a few of the following options: 

Ontario Venture Capital Fund: A $205 million fund launched in Nov 2007 and backed by the Government of Ontario, RBC, Manulife and BDC. Invests primarily in technology ventures.  

Dragon’s Den: Generate both buzz and bucks for your new venture by pitching your business on CBC’s successful show.  

National Angel Capital Association: A non-profit association supporting and encouraging angel investment in Canada.  

Once you’re up, running and financed, make sure you stay on top of your funds. Monitor how much is going out and how much is coming in, and do a cashflow statement! Pay your interest on time and communicate regularly with your investors. Always keep your expenses in check and avoid spending lavishly in the early years. Remember that how you manage your funds is just as important as securing them.

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