Auditor's advice: How to raise capital for your business

At Collectia, we love entrepreneurs and the self-employed - and happily work with them, and their businesses, every single day.

Besides the hard work, excitement and learning experience of self-employment, there is also a huge societal benefit - increased employment and increased revenue in public revenues - when people take the plunge into self-employment.

Although Collectia is a debt collection company that helps collect unpaid debts and unpaid invoices for our clients; we want to support more people to become entrepreneurs - and those who are already self-employed can seek help and inspiration.

1. Let your customers pay for your growth

The cheapest way to start your own business is to get customers to finance your growth. This is the smartest way to avoid giving up shares, taking out loans or having to invest too much out of your own pocket.

To make your customers pay for your growth, you need to start small - perhaps with a limited range, a limited assortment, smaller machines or similar - and let the revenue from your customers help finance your ongoing purchases of bigger and better machines, more variety, etc.

The process can be slow, but it's the cheapest way to get started; that is, if your business doesn't require massive investments from day one - such as expensive licenses, development and the like.

2. Banks

Banks have historically been the classic source of finance when companies lack capital and funding.

Bank finance can often be the quickest way to get funding - but interest rates can be heavy each month, especially when starting up a business.

The bank often has a wide range of requirements for you as an entrepreneur; and you will often be required to submit a business plan, a budget and a start-up budget, and often a personal guarantee/cover from the entrepreneur in case the loan cannot be repaid.

3. Get an investor

A third form of financing is to bring an investor on board.

Investors can often bring more than capital, but also often good advice, a good network and a lot of sparring.

Just be aware that most investors will require a board position, and therefore a say in your business.

Few investors invest in companies that have not proven their worth and track record; and thus rarely in companies that have not had customers, turnover, etc.

4. Avoid the 3 Fs - Friends, fools and families

In the United States there is a concept called "friends, fools and families". A survey shows that between 35 and 40% of American companies' capital comes from friends and family - a group Americans have chosen to call "friends, fools and families".

Our recommendation is that you avoid friends and family when seeking capital and financing for your business; often friends and family are not professionals, have no insight into your business, have very little insight into the consequences of lending money, which can lead to bitter conflicts if you cannot repay the amount owed.

5. Tight debtor follow-up can be the best financing

Many businesses, both start-ups and well-established companies, can often struggle to manage their accounts receivable - and this can be hard on cash flow.

We often see unnecessarily long payment terms being given - and just as often, we see companies failing to follow up when customers don't meet their payment deadlines.

Check if it is possible to reduce your payment deadlines. For example, if the payment deadline is 8 days or more, see if it can be reduced.

The same applies to following up on non-payments. Is your business good enough at following up when your customers don't pay? If not, look into the possibility of automating your reminder procedure and get help from your accountant, bookkeeper or talk to a debt collection company to see if they can help you send out reminder letters, collection alerts and other reminders - if payments are missed for more than 7 or 10 days, for example.