Tuesday, February 7th, 2012

How-To: Fund your Business

By Liz Doyle-Harmer on Mar 15 2010 • Filed under How-To

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 not-for-profit association providing non-repayable grants of up to $100,000 to Canadian entrepreneurs. (Editor's Note: see comments section below)

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.


17 Comments

  1. Marissa
    July 4, 2011 • 2:54 pm

    My business plan has to do with opening a Family Entertainment Centre and my question is whether or not the 0VCF would entertain a grant/loan application from our company.

    Thank you

    Reply
    • Cathy Watters
      July 5, 2011 • 10:54 am

      Hi Marissa,

      That’s an excellent question. My suggestion is to visit the OVCF website and review their FAQ section, to start with. If you can’t find what you’re looking for there, the website also lists a contact email and phone number. Good luck!

      Reply
    • Yosef Shimoni
      January 26, 2012 • 6:11 am

      would be intrested in hearing more about your idea. I have invsted in many businesses throughout my life and when it comes to Family Centres I alwys made money.

      Reply
  2. Lahcen
    May 17, 2011 • 6:59 pm

    HI,
    I have an excellent business idea and a business plan,I would like to commercilize artisanal products,Im looking for a grant or a loan.I didn’t have enough in Montréal where i live,are there any solutions for my business
    Thank you

    Reply
  3. Georgina Terry
    April 28, 2011 • 5:58 am

    Great article.

    I always advice my business clients to have their financial security in place for approx 12 months, before starting their business. In the early stages your business will not be able to pay you, so having a financial cushion saves alot of stress.

    This is a great point ‘Remember that how you manage your funds is just as important as securing them.’

    Live YOUR Passion

    Georgina

    Reply
  4. jeannee
    January 20, 2011 • 1:05 pm

    Do you have access to any resources for US entrepreneurs?

    Reply
  5. Meena
    July 29, 2010 • 12:15 pm

    Hi Cathy,

    Thank you for having this website.

    I am 44 yrs old and have had Fibromyalgia for 20 years. I started a business that is doing very very well and have personally invested over $200,000 of personal money into it. We see great potential but now need to step up on a larger scale. We are at that point where we need some capital to help us break through the start up/small business ceiling since we are beginning to no longer resemble that.

    I was relieved to hear that they are legitimate. Are there any programs for women with disabilities and women entrepreneurs?

    Regards,
    Meena ~

    Reply
    • Cathy Watters
      July 29, 2010 • 4:54 pm

      Hi Meena,

      I put your question up on our facebook fan page as a Brainstorming Question. We’ve already had a response and they gave a link as well for you to check out. To follow the discussion, please visit the facebook fan page. This link will take you directly to your question and the answers it is generating.

      http://bit.ly/afWSrI

      Or you can go to the front page of the Facebook Fan Page:

      http://www.facebook.com/EntrepreneurialWoman#!

      Hope this helps!

      Reply
      • Cathy Watters
        September 26, 2011 • 12:03 pm

        You know, I just realized not everyone is on Facebook. Lol! I’ve pasted the answer from our Facebook discussion below:

        Comment by: Murray J. Anderson
        Are you in Canada or the USA? In Canada there are a number of Federal Government business start up and/or expansion programs available to people with disabilities or special needs. If you approach them with a solid written business plan in hand (as opposed to just a nebulous idea for a business with no real supporting data) they can make a fair amount of money available for the right applicant. Some of it is low interest (or even forgiveable) loans, some is grants and some is as ‘in kind’ value (they directly pay an approved school to expand your training or an experienced business individual from your field to act as a Mentor). Best of luck… be sure to follow up with us and let others know what did and didn;t work for you! http://www.servicecanada.gc.ca/eng/audiences/disabilities/business.shtml

        Reply
  6. Cathy Watters
    July 24, 2010 • 12:43 pm

    DRAGON’S DEN:
    Whether the people who appear on Dragon’s Den pass or fail on the show, just BEING on the show can be worth the publicity you get. Here is an article highlighting businesses that were successful after being rejected on DD.

    http://www.thisismoney.co.uk/work/small-business/article.html?in_article_id=506308&in_page_id=10

    Reply
  7. Ash
    June 25, 2010 • 6:58 am

    I would appreciate knowing if Leadership Grants association has any track record as net blogs indicate it to be a scam.

    Thank you.

    Ash

    Reply

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