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Financing for start-ups

Financing stands for "Where do I find the money I need to start my business"

There is a big difference in how much money you will need when starting a business.

Before you start spending time looking for money, you should take the time to make it clear:

You should also be able to make a compelling elevator speech

Small need for funding

If you’re going to start as a consultant or a graphic designer, or you are a skilled programmer who will develop games for the Android platform, then you will not need that much money. You probably have a computer already and can work from home and do most of the work yourself.

You’ll only need money to live on and not so much to finance the company’s expenses.

Big need for funding

If you have plans to start a shop downtown selling skater equipment, to open a cafe, or to develop a new social online network for diabetics, without having the programming capabilities, the need for financing will be large.

Starting a small physical shop can easily run up from 200,000 Dkr to 300,000 Dkr. You will have to account for a 3-month rent up-front, lease through goodwill or purchase from refurbishment suppliers, and not least of which will be the purchase of inventory. In addition to this, the day-to-day operations of the shop will be expensive and you will most likely need to recruit staff.

Calculate the need for financing

You can find out how much money you’ll need with the use of budgets. You must prepare an establishing budget that shows the total expenses you have before you can start to sell your product.

You will also have to make a cash flow budget showing how much money is needed at the end of every month to pay out your expenses.

 Try out this template and calculate how much you need to sell in order to earn what you need to survive.

These are the most common sources of funding:

1) Private savings

You should always start with your own money. You will have to risk something yourself if you want to convince others that they need to support your startup.
Do you have any savings, home equity or otherwise available means? Use them first.

If you have no money, you must show that you are working hard on your project and put in all the resources you have for the project.

2) Friends and family

Maybe you have friends or family who can lend you money to make your business idea fly.
You should not borrow one big sum of money from just one person, as they’d run the risk of having to sell their home and assets in order to cover your loss.

Borrow smaller portions of money from several people, so they can "survive" the losses they might suffer because of you.

3) Bank or savings bank

Banks normally lend money for the operations of your business, not for the development of a new idea. If the bank believes in you and you can provide a guarantee for the amount you want to borrow, they can give you an overdraft.
Keep in mind that you’ll need to be well-prepared before you go to the bank and borrow money.

4) Financing by suppliers

If you are lucky enough to have good contacts with your suppliers, they can help with financing. If you are allowed to buy your products and get four months credit, and you know that you can sell the products in one month, you can have the money to start.

5) Crowdfunding

Crowdfunding means that a large group/a crowd of people will invest a small sum in your idea or your business.
There are several different crowdfunding websites you can use with this form of funding. Quite a few business ideas get funding this way and they are oftentimes quite innovative and radically different from the normal businesses.

Although there is a tendency for game developers, interesting new physical products and cultural projects with small budgets to find money through crowdfunding, a new cafe in Aarhus might not have a chance of getting financed this way.

Read more about crowdfunding on Danish Crowdfunding Association website.
See also an inspiring video on Crowdfunding

6) Business Angels

Business angels are wealthy private individuals who invest in businesses on a private basis. They invest in start-ups with their own personal wealth and they’re simply looking to make money from their investments.

Business Angles are not found in the phonebook and they often find their investments themselves.

However, you can find contacts to the Business Angels in the entrepreneurial environments e.g. in and through innovation incubators.

7) Innovation incubators

The publicly funded Innovation incubators are the most "friendly" investors. There are four Innovation incubators in Denmark who have money to invest in innovative growth companies.

You’ll need to make a business plan and send it to one of the incubators and they will decide whether they think the business idea is good and the team behind can lift the idea.

If they believe in the business plan, they may invest up to 1.7 million in the company.

8) Change your plans

If you simply cannot find money anywhere, change your plans. Resistance can be healthy for your business idea - it is often resistance that creates innovation. Maybe there are good partners who can help to lift your idea?

Assess whether you can achieve the goals you have set in a completely different way.

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