Every single small business needs cash. It’s the cause most small businesses fail. They simply don’t have the resources to get by way of a cash deficit period. Here are 3 or more ways you may not have thought of to get funding for your business.
Advertising Pay out Per Response (PPR) and Pay out Per Order (PPO)
If you have a product, usually a consumer product, that requires weighty advertising to reach customers, try to convince advertising mediums such as magazines, papers, radio, and TV, to accept transaction based on the orders generated in their books, radio or TV broadcasts.
A few use Metro Newspaper as an example. You add a display ad for your product that says please call 123-4567 to order or for further information. That will phone number goes to an answering support that tracks the number of incoming phone calls. The only place that particular 123-4567 phone number appears is in the Metro Newspapers ad. For every caller (Pay For each Response) you then pay Metro Newspapers a $1. 00, or regardless of the agreed to rate is.
You can also pay per order rather than per response.
You benefit because you don’t have to get the cash to pay for the ad prior to it runs. You pay only in order to produces results. Metro Newspaper markets space it wouldn’t have and it has the opportunity to get more for that space than the regular ad rates if it’s prosperous.
We used a newspaper for example, but you can use the PPR or PPO with TV and radio as well. You can also use a coupon with a code on it as the response mechanism rather than telephone number. Make sure you can track plus identify the responses/orders generated with the ad placement. Usually the advertising medium will demand independent verification, or that the responses/orders go through a completely independent third party or fulfillment house. Occasionally, the advertising medium will handle the orders, receive payment through the customers and then forward the transaction (less their charge) and the purchase to you to be fulfilled.
No, this isn’t advertising for an investor. Again, this works better with customer products that require substantial advertising, such as infomercials. You have the investor pay money for the advertising and in return they will receive a share of the revenues created from the advertising. The orders need to be independently verified. Often the investor will demand that all the money generated from the orders be placed in a separate bank account, the investor’s share is subtracted first and the remainder sent to a person.
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The share to the investor can be substantial from 20 to 50 percent of the sales generated.
Friends, As well as Yourself
This is probably the most widely used supply of capital for small and start-up businesses. Any capital provided by friends, or your family, should be treated in a businesslike manner. If they’re purchasing equity in your company, then provide your company plan and disclose all the risks. Have them sign a statement that says they’ve received the business plan and recognize this is a risky investment. If they’re lending money to you personally to put in the company or lending straight to the company, have a loan agreement ready with market rate interest plus a repayment schedule. You can defer the eye for a year or make interest only payments if cash will be tight.
Realize that an outside investor most likely will not recognize that debt and allow it to be paid off with funds they provide. This is especially true if you’ve loaned your company money — an investor most likely will not pay you off or allow the company to pay you off until the company has reached positive cash flow.