The most common strategic challenges for entrepreneurs and small business owners in Canada are undercapitalization, tight cash flow, and short-term financial restrictions.
Nonetheless, startups have good reason to be optimistic about their success in year one with 85% of Canadian startups making it past the 12-month mark. The unbridled optimism of startups can and often does come back to bite them by year four and five 5 though, unless they have invested time in developing a creative and comprehensive financing strategy.
Following these five steps will help your startup live well past 60 months and prepare you for the critical growth period to come:
1. Develop a Strategic Funding Plan
The development of a bulletproof financing strategy is one of the most overlooked keys to startup success. The first step in any intervention is to commit to following through. Give yourself ample time to do research and set a time to sit down and hash out a plan.
2. Learn About all of the Sources of Funding Available
It’s not likely that all of your startup funding is going to come from one place. Take stock of all of your options before diving into a big loan or commit to draining your savings account.
- Commercial Lending: It’s not always easy for start-ups to access commercial lending without putting up collateral, such as their home. While nearly two-thirds of small businesses utilize commercial loans, only about half of startups access this source of funding.
- Bootstrapping: Unless you just invented Velcro or post-it notes, plan on funding the launch of your business with your own money. Statistics Canada reports that approximately 75% of startup funding comes from the business owners’ savings, credit, and home-equity loans.
- “Love Money”: Born with a silver spoon in your mouth or lucky enough to have a close, supportive personal network? If so, congratulations! If not, tell them about the home-equity loan you signed. According to Industry Canada, about 10% of business owners utilized money they received from family and friends. No report on how many of those loans were paid back.
- Crowdfunding: In case you haven’t heard of it, this is basically a collective effort to pool money from individuals online. If you think investing in your business is something that people will feel good about then I would suggest checking out a site like Kickstarter or Indiegogo.
- Angels and venture capitalists: Still waiting for The Shark Tank to call back? If you are still pre-revenue I doubt you are yet ready anyway. Only 5% of Canadian startup financing came from angel investors and/or capital investment throughout 2011. If you are looking for VC support, look into both the National Angels of Ontario and Canada’s Venture Capital & Private Equity Association.
- Canadian Government Grants and Loans for startups: There might be a wide range of funding options available to your company, depending on the program and how much funding you are looking for. Canadian small business grants and loans is actually one of the most under-utilized sources of funding available to start-ups, accounting for about 5% of all startup funding in 2011.
3. Consult Business Funding Experts
Don’t be afraid to ask for feedback from professionals. As your business grows, relationships with banks and other lending firms will inevitably become more important—better to become acquainted now as opposed to when you may be looking for help some point down the road. Financial planners, skilled tax accountants, and Canadian government funding experts can do a great deal to help you develop and solidify a funding strategy that can help your business achieve financial stability.
4. Learn How to Access Government Grants and Loans
While accessing government funding at the startup phase may provide little beyond Canadian business grants for hiring, it will pay to become familiar with the process as much greater opportunities will be available once you grow to 10 employees or more. In addition, as the very nature of government funding requires planning projects six to 12 months in advance, new entrepreneurs often find the process a great exercise for instilling disciplined growth planning.
5. Follow Your Cash Flow Statement, Not Your Gut
The goal of every small business should be cash flow. Keep track of money coming in and going out, and make decisions accordingly. This may require some discipline, but will only become more important as your business begins to grow. Businesses that master this art in their formative years will have a much better chance of avoiding financial failure when it becomes more crucial later on.
Small business operators should commit to making government grants and loans a part of their cash flow plan, which not only frees up cash, but also helps to promote forward thinking and accelerates strategic, sustainable growth.