The beauty of entrepreneurship is that there’s little limitations on where you decide to grow your passions.
Yet, while our human capacity to dream and innovate is seemingly limitless, the money is not. For social entrepreneurs, this can be an issue, as the most profitable industries tend to be finance and tech, making it challenging for those working in human-centric sectors to access funds and turn a profit.
Yet with an increase in big name entrepreneurs like Elon Musk now actively encouraging businesses to be more socially conscious, there are now more opportunities and financial resources available to social entrepreneurs than ever before. For those who want to make a difference, but don’t know where to start, here are X ways that you can finance your social enterprise.
1Grants can be a great jumping off point
Anyone who has ever applied for a grant knows that it isn’t easy. Having to adhere to the rules and regulations that often come with grants, there are a lot of boxes to tick in addition to making sure money you are applying for will be used for what you need. While it might sound like more hassle than it’s worth, grants can be an excellent jumping off point for first-time social entrepreneurs.
Not only do they give you the funding to get your project or business off the ground, successfully winning a grant looks great on a professional resume. Hiring a consultant or grant writer that specializes in social enterprise can help put you on the right track. Grant writers not only help you articulate your financial needs, but will find the best grants based on your specific needs.
2Talk to a fundraising expert
If it wasn’t already obvious by the title, a fundraising expert knows everything there is to know about successfully raising cash, in addition to helping you manage the money once it comes in. Financing consultants will first work with you to determine what your business needs, helping you to establish goals and set up milestones even before you start pitching investors.
Typically, you would want to work with someone who has experience in your industry, such as freelance consultants who have had a wide variety of experience and a successful track record. Many businesses work closely with their consultants, often referring to them after acquiring funding in the case that they may have questions about future funding opportunities.
3Join a community
For the majority of entrepreneurs, and especially one focused on socially minded projects, it’s imperative that you have a support network. Joining an accelerator of startup hub isn’t just about having people to talk to about your ideas, many accelerators are carefully designed to help entrepreneurs have access to professional networks, training, and continual support.
In many cases, accelerators partially fund entrepreneurs in the early stages of their project, so it’s wise to have a pitch carved out based on specific criteria of the accelerator that you are looking to join.
4Don’t overlook government funding
In recent years, local governments have dedicated resources to social enterprises as a way to improve life for their citizens and increased chances of being recognized as progressive on a global scale.
By recognising social enterprises, governments are investing in social projects to help address various social issues and create room for innovation in various sectors. Social businesses can now take advantage of the various programmes aimed at providing funding for conscious businesses, such as training and capacity building programs and public procurements systems.
While passion is the key to any social project, no business can survive without money, thus increased access to funding has allowed the social economy grows rapidly in recent years. By dedicated time and resources to developing social networks, applying for grants and collaborating with local governmental entities, social entrepreneurs have a good chance at getting their business off the ground that can actually make a difference.
6 Money Management Tips For First-Time Entrepreneurs
That $5 coffee every morning isn’t taking you to the next level any faster than brewing a pot at the office.
How many times have you been told that saving money is a good thing? Financial specialists recommend that you save a bit of money every month, but that’s easier said than done. After all, it’s not uncommon for people to live paycheck to pay cheque.
However, if you want to start a company, you’ll need to break away from this cycle and start budgeting and saving. At times, this will be a trying task, but it must be done if you want to invest in your future as an entrepreneur.
If you want to start managing your money more effectively and set yourself up to become an entrepreneur, follow the six tips below. With these techniques in your arsenal, you’ll start so see immediate changes, and you’ll set good behaviours in motion that’ll serve you throughout your career as an entrepreneur.
1. Prioritise organisation
When you are organised, you can track every facet of your finances. Record all of your financial information in one place so you can refer to it and keep track of your progress.
When you chronicle all of your financial information, you may want to try and organise it by category. For example, when you are recording your current costs, you can categorise them as “urgent” and “future.”
Not only will this system help you stay on top of your personal finances, but it’ll prepare you for entrepreneurial success because it’s a directly transferable skill.
Related: Smart Money For Small Businesses
2. Check your credit
According to a recent MoneyTips survey, nearly 30 percent of people don’t know their credit score. If you are among this group, it’s time to request a free credit report. Once you know your number, assuming money’s tight, feel free to use a few do-it-yourself credit repair techniques to quickly improve your score.
Understanding your credit score and improving it to the best of your ability is paramount when it comes to money management. A little-known fact among aspiring entrepreneurs is that the funding a new business receives is often dependent on the founder’s credit score.
3. Save where you can
People often cringe when they think about cutting back. Fortunately, there are several painless ways to save. Look at your daily habits and see if you have any spending trends. For example, if you spend $5 every day on lattes, you might consider cutting back and only having the expensive latte every other day. Slowly, you’ll get used to this new habit, and your bank account will reap the rewards.
4. Search for additional information
Subscribe to websites and follow podcasts that offer advice on money management. Also, keep your eyes peeled for informative outlets that speak directly about entrepreneurial finances and follow them, too.
5. Set long- and short-term goals
Have you ever noticed that people want to reach their goals in as little time as possible? If you pick up almost any given health magazine, it’ll claim that it can help you achieve extreme results in little to no time.
Unfortunately, crash diets are often ineffective, and “get rich quick” money management techniques often lack substance.
It’s hard to accept that your goals will take time to accomplish, which is why you create short- and long-term goals. In either case, aim to make goals that are specific, measurable, attainable, relevant and time-based. Ideally, accomplishing your short-term goals will give you the positive feedback that you need to continue striving for your long-term goals.
6. Find a mentor
If you manage your personal finances and entrepreneurial finances, one thing is certain – at times, it will feel like you can’t keep up with everything. Financial planning can be difficult, and it’s not uncommon for it to feel overwhelming.
As an individual, you can seek out mentors that can help you with personal finances. As an entrepreneur, you can continue to work with these people or seek out more established financial consultants that provide you with guidance you need to run your business.
Managing your finances is a trying and rewarding experience. It will feel messy at times, but the more you practice, the more you’ll improve your personal finances and set yourself up for entrepreneurial money management success.
This article was originally posted here on Entrepreneur.com.
How To Raise Working Capital Finance
There are more than 150 working capital funds available for SMEs in South Africa. Here’s what you need to know to access them.
A healthy cash flow is the life blood of a business. The reality is that most businesses experience cash flow problems from time to time, which could be caused by a structural problem in your supply chain, inadequate debtor controls, poor pricing structures, bad planning, too much capital being tied up in stock or possibly the impact of unplanned growth on your existing resources.
Whatever the reason, the good news is that there are more than 150 different working capital funds available for SMEs in South Africa. Working capital loans are short-term loans that are designed to provide financial bridging to address cash flow needs.
The more you understand about how these funds work, the better you will be able to identify the most appropriate option for your specific needs.
Overdrafts and credit cards
Overdrafts and credit card facilities are a good option for relatively small, short-term cash flow problems. Most banks are willing to provide profitable businesses with overdrafts and credit facilities and you will only be charged interest on the money you use. Some banks charge a small monthly fee for these facilities even if you don’t use them, but this is a small price to pay for the convenience of being able to meet financial obligations.
Related: Equity Crowdfunding In SA Explained
Also known as getting upfront cash to fund the work for an approved contract. If the reason for the cash flow problem is high sales volumes that result in a temporary cash flow issue, contract finance can be a good option. Contract financiers want to know that your client is reputable and has a good payment history. They’ll also want assurance that you have the knowledge and experience to fulfil the terms of the contract.
First prize is contract finance that enables you to control both the finance and the contract work although in some cases the lender will insist on controlling the finance and may even want involvement in managing the project. Most contract financiers charge an interest rate linked to prime and you will also be charged for drawing up cession documents if this is relevant.
Debtor finance or invoice financing
Also known as getting cash while waiting for customers to pay invoices. If the cash crunch is caused by customers who will take a long time to pay you, debtor finance can be useful. In this case, unlike contract finance where the finance is provided prior to the work being completed, debtor finance requires that the work has already been done and that the customer has been invoiced. As with contract finance, the credibility and credit history of the client is key to lenders as they rely on their ability to pay your invoice.
On average you can raise between 75% and 80% of the value of the invoice within a day or two of sending the invoice to your customer. There is usually an administrative fee to be paid plus interest on the loan — it can be an expensive way of getting finance but it is better than waiting 90 or 120 days for your customer to pay you if you have cash flow constraints. Debtor financiers offer two options — invoice discounting and factoring. Factoring is when your client pays the lender who then returns the outstanding portion of the invoice to you (less their fees).
Invoice discounting is where the customer pays you and you pay the lender i.e. the client does not know that you have borrowed against their invoice. There are usually big penalty costs for late payments. Be aware that if the client does not pay by the specified date agreed with the lender, you will incur additional penalty costs.
For businesses that operate in the retail sector and generate their revenue from debit or credit cards or EFTs there are lenders who provide loans that are repaid by deducting a small percentage of daily sales. You will need to generate a regular income of at least R30 000 monthly to qualify for this type of finance. The useful aspect is that repayments vary according to income generated. During busier months, you’ll pay more, and less during quiet periods.
Term loans are another popular way of raising finance to cover cash flow gaps. The money is loaned for a fixed period and you agree to repay at regular intervals. Interest charges are usually linked to prime and the rate is linked to your risk profile. The duration of term loans varies according to the business’s needs and lender’s terms.
You will be expected to provide collateral to raise a term loan. Lenders will also check your credit rating and financial statements, business plan and possibly the order book before they agree to lend you money.
What working capital funders expect
The key to obtaining working capital funding is understanding the lenders’ risk. To minimise their risks, lenders will require security for the loan. Providing collateral is often difficult for entrepreneurs who do not own property or have assets or investments that can be ceded to the lender for the duration of the loan.
Lenders will ask you for a list of personal assets and liabilities and based on this information, they may ask you to sign personal surety for the loan. If you do not own sufficient assets, you’ll need to find someone who does who is willing to stand surety for your loan. This means that if the business fails to repay the loan, the lender will approach the person who signed surety, to settle the debt.
For terms loans, retail finance, overdrafts and credit cards, the lender will focus on the financial strength of your business and its trading history. They usually only consider companies that have been in operation for at least a year and can show that the business is profitable, has a regular income and achieves good credit scores. For contract finance and debtor finance, lenders focus on the quality of your client and may fund working capital advances to businesses that are not yet profitable.
Working Capital Loans
Working capital loans are short-term loans that are designed to provide financial bridging to address cash flow needs. The more you understand about how these funds work, the better you will be able to identify the most appropriate option for your specific needs.
Finfind is SA’s leading access to finance solutions for SMEs. This revolutionary online platform links finance seekers with matching lenders, providing easy access to over 200 lenders and over 350 loan options. Finfind is supported by USAID and sponsored by the Department of Small Business Development.
Go to www.finfindeasy.co.za to find the business finance you need. It’s free and easy to use.
Equity Crowdfunding In SA Explained
Here’s a brief snapshot of what it is and how it could benefit your business.
As an entrepreneur, finding the right funding for your specific start-up is hugely important.
With momentum around crowdfunding growing on a global scale, there is talk about equity crowdfunding becoming a viable option in South Africa. This is very good news indeed, as it has the potential to significantly boost economic growth.
Here’s a brief snapshot of what it is and how it could benefit your business.
Equity crowdfunding is a simple concept: Members of the public (the crowd) are offered equity (shares) in a company (generally a start-up) in exchange for funding. The company then uses that funding to kick start the business.
Donations-based crowdfunding and rewards-based crowdfunding have started to gain some traction, with local players such as Thundafund (rewards based) and Backabuddy (donations based) leading the charge; however South Africa is still lagging behind much of the rest of the world, mostly due to the lack of precise legislation around crowdfunding.
The Financial Services Board are yet to decide how they will regulate crowdfunding in South Africa, and so interested parties have been hesitant to engage with crowdfunding, with no-one attempting equity crowdfunding to date.
Another major hurdle is that private companies are not allowed to offer their shares to the public, and the difficulty of registering as a public company is simply too great for a start-up to even bother with. The reason for such stringent requirements though, is to essentially stop fraudulent schemes. The last thing you would want to do is fund an extra round of piña coladas in Mauritius for the opportunistic con-man – the government is therefore right in trying to regulate this area.
There is, however, light at the end of the crowdfunding tunnel – a new start-up Uprise.Africa aims to launch towards the end of this year. Uprise.Africa will be the first of its kind in South Africa in that it will offer the man on the street the ability to invest in a startup of his choosing and receive equity (shares) in exchange for that investment. This is great news for start-ups, as the public will have a vested interest in the success of the business.
Take the example of a microbrewery wanting to launch their brand and get off the ground: Instead of the public (crowd member) receiving a reward in the form of a case of beers for their contribution, they will receive shares.
They will (probably) order a case of beers from the microbrewery and tell their friends to order beer from the microbrewery, as they will get a financial benefit if the microbrewery succeeds. The microbrewery, as a result, receives funding three times over instead of once – which is a powerful tool for growth.
Essentially, the crowd will be a business partner with the start-up, and in so doing, the first customers of the start-up are already waiting in the wings.
The World Bank recently predicted that the market potential in Africa for crowdfunding will be up to $2.5 billion by 2025. Equity crowdfunding in South Africa will hopefully tap into that and unleash significant potential in the startups that are based here.
The hope is that the regulators, when they do eventually regulate crowdfunding, do it in such a way that it is not a death knell for the system that has the potential to significantly boost our economic growth.
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