This article is the fourth in a series that addresses the characteristics of high-achieving women entrepreneurs and fast growth businesses. The following will detail the fourth characteristic, diversification of funding sources. To read the introductory article, "Traits of Top Women Entrepreneurs," please click here. To read "The Economy Demands Investment in Professional Advisers," please click here. To read "Application of Sophisticated Management Practices," click here.
In a previous article I articulated the importance of investing in professional advisers. These advisers are crucial throughout the course of your business development, as well as during its launch. It is also important to use a variety of funding sources to support your business growth. In the current recession, having diversified sources to fund your business becomes vital for sustaining growth. For start-ups these sources can be diversified through utilizing the three "F’s" — friends, family and personal fortune, as well as through seeking both credit and equity investors for second stage companies.
The Three F’s: Friends, Family and Personal Fortune
When looking to personal sources for funding, I urge you to be aware of what you will receive compared to what you will relinquish. This first tier gives you the most control over the business and the terms. Eva Sun, Canadian WPO member and president of Libra National, Inc., offers these tips when approaching your friends and family, and using your personal resources as sources for funding:
1. Ensure that the loan is made to the business and not the person. Since this is not a personal loan, but a loan to the business, it should be documented as such.
2. Offer protection of the loan to your friends or family. Understand that they are not a business and also need more security of repayment.
3. Be fair. Give your lenders a fair interest rate, which may, in fact, be higher than the interest rate offered by financial institutions.
Avenues of Credit/Debt
Using multiple avenues of credit is another option as a source of funding. Given the volatility of the current market, it may not be the best option but should not be discounted as a potential opportunity to secure financing. In using credit you give up very little control of the company, however you do not have control over the terms, interest payments or availability of a line of credit cut. Linda Hamilton, New York CPA and accountant for the WPO advises, "Although the credit market is currently unpredictable with the falling risk tolerance of lenders, this is not an avenue to be ruled out by small businesses. It is crucial that small businesses review all sources of funding that may be available to them well in advance of the need."
Angel Investors are by definition looking for a greater return than they would see from a traditional investment. In that return they seek a part of your company, as well as rapid repayment. In this tier, you may lose more control than through avenues of credit or friends and family. However, angel investors have a vested interest in the growth and success of the company and have a strictly professional and protected relationship with the business owner and business. They may also be a great source of management help and guidance.
Diversifying your funding sources is an essential in this market. The more sources you explore, the more likely you will receive the funding you need to keep your business, your finances and your sustained growth on track.
Written originally for w2wlink.com by Dr. Marsha Firestone.
is a non-profit membership organization for women presidents' of multimillion dollar companies. Members of the WPO take part in professionally-facilitated peer advisory groups in order to coax the 'genius out of the group' and grow their businesses to the next level. The WPO is headquartered in New York City and currently boasts over 75 active chapters and over 1000 members across the United States and in Canada. There are two primary membership options: Chapter and Member-At-Large. Each chapter meets monthly, consists of 10-20 women presidents/CEOs/Managing Directors/etc, and is moderated by a professionally-trained facilitator. Chapters are not permitted to have more than one business in the same industry represented. At-Large Membership is created for women whose schedules make it impossible for them to commit to monthly meetings, or for areas in which the WPO does not yet have a chapter. www.womenpresidentsorg.com