If you are planning to set up a new business, then you will be required to make an initial investment. So, what is really an investment? In simple terms, an investment is putting in your money somewhere in the expectation of greater returns. In other words, if you have $100 in your pocket, then instead of buying something with it right away, you spend it on something that will give you more than $100 in return. This $100 purchase is an investment that you make.
However, any investment that gives sizable returns cannot provide guaranteed returns. Therefore, an analysis of risks is important before you make your initial investment. You must reassure yourself that your business stands to be successful or not, given present market conditions. It is important to know that market conditions are something you cannot control. A cost-benefit analysis of each component of your expenses will help you prune your initial investment or at least verify that all of it is warranted.
Sources of Initial Investment
- Your own funds: This is probably the most common source of financing an investment because you do not have to convince anybody else to give you the money. You just need to convince yourself and have the wherewithal to invest. Many successful businesses are self-financed.
- Relatives and friends: The second most popular source of starting a business is funding from relatives and friends. This is because they are close to you, believe in you and want to support you. This funding could be either by means of equity or debt.
- Bank Loans: Bank loans are also an option. However, banks lend money to you as debt, often at high rates. Your debt payments may strain your cash flow. Also, it is important to know that banks generally ask for a well-formulated business plan before considering lending to you. So, you might have to use the services of a professional or buy software to help you prepare a convincing plan.
- Angel funding: In the start-up stage, there is also the option of angel funds. These are generally funds which invest in promising business ideas. It is important to know that these funds are typically not interested in tried and tested businesses and usually look for out-of -the -box ideas.
A combination of these sources can be used to make your initial investment. Also, other lesser known sources such as trade finance or credit from suppliers or customers can be used as an option for financing your new enterprise.