Every small business needs cash. It s the reason most small businesses fail. They simply don t have the resources to get through a cash deficit period. Here are 3 ways you may not have thought of to get funding for your business.
1. Advertising Pay Per Response (PPR) and Pay Per Order (PPO)
If you have a product, usually a consumer product, that requires heavy advertising to reach customers, try to convince advertising mediums such as magazines, newspapers, radio, and TV, to accept payment based on the orders generated in their publications, radio or TV broadcasts.
Let s use Metro Newspaper as an example. You place a display ad for your product that says please call 123 4567 to order or for further information. That phone number goes to an answering service that tracks the number of incoming calls. The only place that particular 123 4567 phone number appears is in the Metro Newspaper ad. For every caller (Pay Per Response) you then pay Metro Newspaper a $1.00, or whatever the agreed to rate is.
You can also pay per order rather than per response.
You benefit because you don t have to find the cash to pay for the ad before it runs. You pay only when it produces results. Metro Newspaper sells space it wouldn’t have and has the opportunity to get more for that space than the regular ad rates if it s successful.
We used a newspaper as an example, but you can use the PPR or PPO with TV and radio as well. You can also use a coupon with a code on it as the response mechanism rather than a telephone number. Make sure you can track and identify the responses/orders generated by the ad placement. Usually the advertising medium will demand independent verification, or that the responses/orders go through an independent third party or fulfillment house. Occasionally, the advertising medium will handle the orders, receive payment from the customers and then forward the payment (less their charge) and the order to you to be fulfilled.
2. Investor Advertising
No, this isn t advertising for an investor. Again, this works better with consumer products that require substantial advertising, such as infomercials. You have the investor pay for the advertising and in return they receive a share of the revenues generated from the advertising. The orders have to be independently verified. Often the investor will demand that all the money generated from the orders be placed in a separate bank account, the investor s share is deducted first and the remainder sent to you. The share to the investor can be substantial from 20 to 50 of the sales generated.
3. Friends, Family And Yourself
This is probably the most widely used source of capital for small and start up businesses. Any capital provided by friends, or your family, should be treated in a businesslike manner. If they re buying equity in your company, then provide your business plan and disclose all the risks. Have them sign a statement that says they ve received the business plan and recognize this is a risky investment. If they re lending money to you personally to put in the company or lending directly to the company, have a loan agreement prepared with market rate interest and a repayment schedule. You can defer the interest for a year or make interest only payments if cash is tight.
Realize that an outside investor most likely will not recognize that debt and allow it to be paid off with funds they provide. This is especially true if you ve loaned your company money an investor most likely will not pay you off or allow the company to pay you off until the company has reached positive cash flow.
Don t let your small business fail because you ve run out of cash. |
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