Show me the money - financing a start-up business

You may remember this line from the film ‘Jerry Maguire’ where sports agent, Tom Cruise, sets up his own business, disillusioned with the attitude and ethics of large corporate life.

This film was released in 1996 and, in the 10 years that have followed, millions of people in the UK have followed the Jerry Maguire path; leaving behind a large corporate employer to start their own business from home and running that business in a way that suits their personal style.

For many of these people, the business is an extension of themselves but what happens when you reach a point where extra financing is required to take the business on to its next level of success. Is it time to bring in ‘outsiders’ who have the resources to help but may also have their own views on how to run your business?

Let’s consider the options.

The Bank – this approach is the most tried and tested. There is a track record with your Bank but they will need to see signs of a business plan with a clear exit route before considering funding. This applies to all funding options, except the last.

Angel investment – this may include friends and family; an ‘angel’ who has funds to invest and is confident that your business will succeed and produce a return on investment. Angels are highly likely to want a slice of equity in return for their contribution and possibly a say in managing the company.

Venture capital – tends to be used only when the sums being sought are in the high hundreds of thousands. This form of institutional investment comes with all the strings you would expect; performance targets, a seat on the Board and a piece of the company.

I see no shortage of funding routes in the UK. The main decision any home based entrepreneur needs to make is whether they are prepared to agree to the conditions that come with the money. Which brings us on to the final option...

Customers – customers deliver cash and yes, of course they want something in return but they don’t want a part of your company or indeed to have a say in running it. This may be the old-fashioned route to securing funds but it works. You are showing that someone wants your product/service so much that they are prepared to pay for it and, if you keep them happy, they will keep funding the expansion of your business.

And so back to Jerry Maguire who chose this final option to grow his agency business, driven by his mission statement that “We must embrace what is still virginal about our own enthusiasm, we must crack open the tightly clenched fist and give back a little for the common good, we must simply be the best versions of ourselves …that goodness will be unbeatable and the money will appear.”

Emma Jones is editor of the homeworking website at www.enterprisenation.com