What is the single best way to fund a startup?
It’s Simple – Sales
Sales solve a lot of problems for startups and small businesses looking to raise capital. Here are 3 ways you can raise capital with sales.
1. Deposits – I believe that up front deposits could be one of the most powerful ways for startups and small businesses to raise capital. Let me give you an example.
I recently worked with a new Crossfit gym that wanted to raise between $75k to $100k to secure a location, renovate it, purchase equipment and open the gym the right way. The first thing they did? They sold memberships. That is right, before they even had a gym open, the owner was able to convince 15 individuals to pay up front for their membership for an entire year. This amounted to approximately $30k in cash deposits from customers. The cash is great, but the real value was the fact that they were able to leverage the initial sales to raise additional capital. What they did was prove the market. They ended up raising an additional $100,000 from lenders and investors because he had customers, he had cash, and he had demand, all before they even opened their doors for business.
2. Letter of Intent – Another way to raise capital from customer sales is to utilize a letter of intent from your customers. For example, you might be able to get a customer to provide a letter of their intent to purchase. You can then take that letter to the bank and use it to potentially secure a loan or line of credit.
3. Factoring Receivables – The last way to raise capital now based on customer sales is to factor your receivables. You might sign a sales contract with a great A+ company, but they won’t pay for 90 days. You need the cash now to fulfill the sale, and your customer is credit worthy, they will pay, it may just take a while. This is the perfect situation for factoring your receivables. We partner with Lendio (an eHarmony for business loans) and they can connect you with the right factoring company for free. Check them out.
The best way to raise capital? Sales. It is as simple and complicated as that. Just keep these 3 ideas in mind as you are looking to raise additional funds for your business.