Welcome to the final blog in our Cash Flow Series. In this post, we’ll explore Tip #14: Alternative Funding or Finance. As we conclude the series, we’ll delve into various types of funding and financing options that can have a high impact on money inflow. It’s essential to understand the distinctions between reliable and unreliable funding sources, as well as internal and external financing. We’ll explore equity, interest-based funding, and other alternative methods, each with unique characteristics and considerations.
Understanding Alternative Funding or Finance
Alternative funding or finance refers to the diverse range of financing options available to businesses outside the traditional banking system. These options can be categorised based on reliability and source. Reliable funding is dependable and ready when you need it, while unreliable funding is contingent on external factors beyond your control, such as grants or prize money. Internal funding comes from customer-generated revenue, while external funding is sourced from entities outside your organisation, such as loans or investments.
Types of Alternative Funding
Equity
Equity funding involves exchanging ownership in your business for money or services. Two common types of equity funding are co-founder equity and equity for services or relationships. Co-founder equity entails giving a share of ownership based on the vision and future of the business. On the other hand, equity for services or relationships grants a stake in the outcome, such as a percentage of gross revenue or a share in net profit. Choosing the right equity partner is crucial, as it can significantly impact decision-making in your business.
Interest
Interest-based funding provides a stake in the outcome or results, without necessarily involving equity in the overall business. Joint ventures and strategic partnerships are two types of interest-based funding. Joint ventures are business entities created by multiple partners who share ownership, returns, and management responsibilities. Strategic partnerships involve separate parties collaborating in a win-win arrangement while maintaining their individual businesses.
Other Alternative Funding
This category includes funding methods that don’t fit neatly into equity or interest classifications. It comprises three types:
- Barter: Exchanging goods and services without using money, often mutually beneficial for both parties.
- Mentorship: A two-way relationship where knowledge, expertise, networks, and skills are exchanged.
- Crowdfunding: Financing obtained through loans, donations, or exchanging money for rewards, usually through online platforms.
Cash
Cold hard cash can also be utilised creatively to obtain alternative funding. Three cash-based methods are:
- Quote: Building a brief to compare service providers and their offerings.
- Deferred Payment Option: Arranging a payment schedule outside the provider’s ordinary terms.
- Special Offers: Providing exclusive discounts or deals to members or customers.
Exploring alternative funding and finance options can have a significant impact on your cash flow. Understanding the reliability and source of funding is vital to making well-informed decisions for your business. Whether considering equity, interest-based funding, or other innovative methods like bartering or crowdfunding, choose the options that best align with your business goals and financial requirements. As we conclude the Cash Flow Series, we hope you’ve gained valuable insights to help you manage and improve cash flow in your business successfully. Remember to always prioritise financial sustainability and long-term growth. Wishing you financial prosperity on your business journey!
Head to our YouTube channel to view our Cash Flow Tip #14 video along with all the other tips in this series!
