The 10 biggest issues facing start-ups in 2013: #2 funding

What are the main issues Australian start-ups are grappling with? Accountancy and business advisor network DFK recently conducted a survey of its clients and staff to identify the top 10.

We’ve already highlighted number 10, cloud computing, and number nine, exit strategies. The beefy Australian dollar is in at number eight, while political uncertainty is seventh, growing pains number six, while number five is how to hire and keep staff or let them go quickly. Number four was falling consumer consumption and number three is tax.

We’re now at issue number two — funding.

The DFK survey shows the second hardest challenge for start-ups is – not surprisingly – funding.

Raising money is tough – especially if you have few assets and no useful network – but don’t give up! There are opportunities out there.

The banks are usually very restrictive when it comes to lending money to start-ups, especially if you have little or no assets yourself. Still, there are opportunities, it all depends on you.

What is your experience? How long have you been in the industry you’re planning to start the business in? Do you have good references? Do you have a great mentor to support you? How do you carry yourself? So, you tick all those boxes? Well, pull up your socks even further. Create the best business plan that there ever was.

Be sure your business plan contains all the different parts: organisational, marketing, operational, financial and risk analysis, etc. If you don’t know how to do it, get someone to help you. There are plenty of different solutions. Use your accountant or business advisor or do it yourself – just Google business plans.

The level of funding required will vary.

“It depends what business you’re starting, but if it’s not cost intensive, maybe the balance on your credit card will be enough. Of course, if you’re going into heavy manufacturing then other solutions are necessary,” says Cheree Woolcock, partner of DFK Australia New Zealand.

ANZ has recently announced that they are targeting the small business market, so it looks like NAB will get some competition, which is good for you.

Recently, Nick Reade, ANZ general manager of small business, was quoted in The Australian saying many banks don’t play in the start-up field: “There are a couple of hundred thousand new small businesses every year and we feel that we need to be in that market.”

“We can only applaud the bank for being active. Who knows what business Australia would have missed out on, due to lack of capital,” thinks Woolcock.

ANZ said it was now approving more than seven out of ten lending applications from new small operations, a proportion it wants to increase.

This development is gaining pace, and as we see here at SUS, many new businesses are online-only.

“We see that some banks have been reluctant to lend to online-only business, but I think banks also need to adjust to the cloud-business-world,” says Woolcock.

There are other choices for people now as well, particularly in the start-up space. There is a lot of hype around angel investors, seed capital and crowdfunding, so people might not be as willing to go to the bank.

Adrian Stone knows this better than anyone else as co-founder of Angel Cube and winner of the Best Start-up Investor award.

They take a minority equity stake in internet companies and in return provide seed capital, mentorship, marketing, connections, administrative help and support services (such as legal, accounting and office space).

“I don’t see anyone around me using the bank system. By the time they react, the business is already up and running, and sold. The lifecycle for our entrepreneurs is four years,” says Stone.

The web-based businesses in Australia (and elsewhere) are working in an environment characterised by low costs and high speed.

“The entrepreneurs that go through our program are walking out with $150,000 to $200,000 after six to nine months,” tells Stone.

So there is hope out there for your business too.

How to best get funding within the bank system:

• Polish and perfect yourself and your skills
• Organise credible references
• Produce an outstanding business plan
• Keep a clean credit history
• Start your business in different steps with the funding you get

How to best get funding outside the bank system:

• Government grants – plus there are many other grants as well, locally, different areas and for particular business owners
• Angel investors
• Crowdfunding
• Seed funding is a form of securities offering where an investor purchases part of a business.

There are many different types of funding depending on what sector your business is in.