Entrepreneurs Can Still Raise Funds to Stay Afloat Despite the Economic Crisis, Experts Suggest Top Ways to Do That
Businesses need cash to survive because no cash inflow means less cash outflow. The lockdown has put businesses in situations where they have to rethink and re-strategize for operations to continue.
For most Founders, the challenge is figuring out suitable ways of raising funds to augment what is available. This is because the lockdown has adversely affected sales and revenue across sectors of the economy.
I spoke with two people in different businesses, who are also navigating this lockdown period on what the best approach is to raise funding and sustain cash flow.
Before funding, re-evaluate cash outflow
Before focusing on raising funds, a good way to approach the need for funds is to assess the cost outlay. This entails separating the fixed costs from the variable costs. Upon review of the cost analysis, the organization can make decisions on what they can remove from the list.
Reducing expenses as much as possible is what most businesses are focusing on right now, according to Wole Ogunlade, a product and growth management expert working with VoguePay. Putting expenses that do not core to a business operation is the first way to go.
Whatever money is available to a business in its accounts right now is of more value than what can be raised from investors. So, it is best to keep expenses to the barest minimum.Wole Ogunlade
Are Loans, Crowdfunding, or Investments the best way to go right now?
According to Ogunlade, raising funds is not the very best move right now. This is because most people are concerned about having sufficient enough funds to stay functional and comfortable, and as such parting with funds is not as easy as it was months ago.
Founder of Utiva, Eyitayo Ogunmola, shared the same viewpoint. It is quite a difficult time for the customer, the entrepreneur, and the investor and that affects the outcome.
If businesses raise money from investors who have a lot of cash at this time, the investors have a higher negotiating power in this situation.Eyitayo Ogunmola
That means the valuation of the business will most likely be reduced by the investor who will want to invest and get a larger chunk of the business.
However, if entrepreneurs have to raise funds by all means, then they should be looking at angel investors. Angel investors are a better choice compared to institutional investors for now, because it will take a lot more time for institutional investors to agree to invest.
In selecting an angel investor, he mentioned that it is better to reach out to those that have invested in the niche of the entrepreneur’s business before. This will mean that the angel investor has an understanding of the industry and will bring more to the investment beyond money in terms of contacts and relationships that can help the business scale.
Crowdfunding is another good alternative, especially if the entrepreneur is reaching out to people who have seen the success of the business and resonate with its story. That could be a good way of funding if it becomes necessary.
Additionally, there is the option of obtaining loans. According to Eyitayo, loans are good especially if the business has a positive cashflow record in terms of revenue and sales. With loans, the entrepreneur can negotiate interest rates, moratorium among others.
On loans, Wole Ogunlade also advises caution when securing them from banks. With the absence of an expiry date for the pandemic, he advises that terms and conditions attached should be assessed to ensure the business can meet up to them sufficiently.
Finally, there is the option to produce low-cost products that can generate a good amount of cash inflow and is relevant to customers at this particular time.
Whichever way an entrepreneur decides to go, it is important to weigh all the options and decide if it is important to raise funds, and if it is, what path is the best to follow.
If you’d like to get featured on our Entrepreneur Spotlight, click here to share your startup story with us.
Get latest Technology news, reviews, business-related content with a deliberate emphasis on the African narrative and insightful analysis in Nigeria – straight to your inbox.