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How Much Money Should I Raise For My Start-up?

Posted 13 days ago

How Much Money Should I Raise For My Start-up?
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It’s perhaps one of the most asked questions by any entrepreneur. It’s also one of the most challenging. Raising money takes time and doesn’t necessarily have a guaranteed outcome. Getting it right can make the difference between your business succeeding or floundering.

The answer to this question, in short, is simply: as much as you can. Of course, this is flippant. But frankly, there is no set amount. There are many variables when it comes to raising capital for your start-up. But with a well-researched business plan, including a cash flow forecast, should give you an indication of how much money you need.

 Below, we have listed some of the factors you should consider when trying to calculate how much money you need to raise for your start-up.

1. Look at your competitors

Determine who your competitors are or businesses that are similar to your own. Download their accounts from Companies House, and find out how much it cost to set their business up. Don’t be frightened to even call these businesses and ask outright. Maybe, just maybe, these competitors might invest in your business. They might even provide you with work or subcontract to you.

2. How are you going to obtain capital?

How you obtain funds will affect the future of your business for years to come. Engaging a good commercial lawyer to create a shareholder’s agreement will protect you and your business.

Personal savings, loans from family and friends, bank and government loans, and grants are just a few of the many potential funding sources. Many companies use a combination of sources. For more ideas, you can check out our funding page for the various sources of funding available.

3. One year’s worth of costs in the bank

Have a plan to cover your expenses for the first year. Identify your customers before you open the door so you can have a way to start covering those expenses. When planning your costs, don't underestimate the expenses and remember that they can rise as the business grows. It's easy to overlook costs when you're thinking about the big picture, but you should be more precise when planning for your fixed expenses. When considering how much money you need, a good bottom line is to look at the costs and have a year’s worth of costs in the bank. You can always predict your expenditure, but predicting your sales is like having a crystal ball.

4. Project cash flow

Another important aspect of a start-up's financial planning is to project the business's cash flow. It's wise to project cash flows for at least six months ahead. It can take up to six months to organise new funding.

This should include adding up not only fixed costs but also the estimated costs of goods and best- and worst-case revenues. If you borrow money, make sure you know not only how much you borrowed but also the interest you owe. Calculating these costs puts a floor on the revenues needed to keep the business viable and provides a good picture of the cash necessary to start it up.

This forward-thinking also gives you a monthly sales target to hit which is great motivation to keep your business successful.

To conclude: how much should I raise? Yes, the answer is as much as possible. But an investor or lender will want to see that you have compiled a well-thought-out business plan which covers your costs for a year and has a monthly sales target. Don’t be scared of having too much money in the bank, but be prepared to have an answer to account for why you have and need that money. Investors do not like money that is not being deployed.

In short, having enough money to cover a one-years’ worth of costs is the answer.


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Author: Sacha Bright & Oliver Murphy

Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

Tagged: Investment Entrepreneurs Start-ups Raise Finance



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