In this article on the 7 easy steps on how to raise capital for your small business in Nigeria, we will discuss all the practical ways you can raise capital for your business.? Raising capital is one of the primary issues facing businesses of all shapes and sizes in Nigeria and throughout the world. Every company’s lifeblood is finance.
Businesses would be unable to buy raw materials, convert them to completed products, market or distribute the finished products, or even pay their staff without sufficient cash inflow.
As a result, many new financial institutions have sprung up to address the demands of enterprises. Nigeria’s financial services industry and business finance environment, which was once dominated by commercial banks, now includes venture capital firms, private equity firms, fintech, and crowdfunding platforms.
This demonstrates the industry’s maturity in the country and provides entrepreneurs and business owners with a variety of funding options for their businesses. We will take a look at some of the ways we can raise capital in Nigeria.
What is Capital?
Capital is a broad phrase that can be referred to as anything which makes provision for value or gives merit to its owners, such as a factory and its machinery, intellectual property like patents, or a company’s or individual’s financial assets.
While one can consider money as capital, it is most commonly connected to cash which is put to use for productive or investing purposes. Capital is essential for both the day-to-day operations of a business and the funding of its future expansion.
Top 7 Steps to Raise Capital for your Small Business in Nigeria
Business capital can be raised by debt or equity finance, or it can originate through the company’s operations. When it comes to budgeting, all businesses focus on three types of capital: working capital, equity capital, and loan capital.
The following are some of the ways to raise capital for small businesses in Nigeria:
- Asset Sales
- Angel Investors
- Family and Friends
- Business Grants and loans
- Bootstrapping/Self funding
- Crowdfunding
- Strategic Partnership
Step: Asset Sales
Asset sale is one of the 7 easy steps on how to raise capital for your small business in Nigeria. Your assets are valuable possessions or property. And these assets are a wonderful source of financing because you can use them as collateral when asking for a loan or sell them to raise the funds you’ll need to get your business off the ground.
Some of your assets that aren’t being used to their full potential can be sold to acquire funds to start a business. Buildings, machinery, landed holdings, and other assets can be turned into cash to meet a company’s capital needs.
Step2: Angel Investors
Angel investors are just philanthropists with an interest in business funding. Angel investors are well-known for providing coaching and mentorship in addition to the funds they invest in your new firm.
A clear and strong business strategy, as well as an ownership stake in your company, are two of the most important needs from “angels.” Angel investors, on the other hand, are typically very wealthy individuals who like assisting entrepreneurs with their business efforts if they are good and respectable enough.
Step3: Family And Friends
Family and friends are one of the 7 Easy Steps on how to raise capital for your small business in Nigeria. If you don’t have enough money to start your business or have depleted your funds, family and friends are the next individuals to think about. When you are reliable and trustworthy, think about your family and friends because you don’t want to lose your relationship.
When relatives and friends give you money, they are usually investing in you rather than in your business. You must, however, proceed in the proper manner. Make a business plan and be honest with them about it. Allow them to comprehend the business venture as well as any challenges that may arise.
Step 4: Business Grants and Loans
Several grants and loans are frequently established by government agencies and international organizations to support small and medium-sized businesses in Africa.
This is due in major part to the fact that small firms create a lot of jobs, improve local technologies, and overall help the economy grow. As a result, there are a plethora of grant and loan opportunities available to smart and aspiring entrepreneurs.
Step 5: Bootstrapping/Self-funding
Bootstrapping, which is also known as self-funding, is when a person finances their own business. It is the process of beginning a business with your money and a small amount of running income.
Bootstrapping isn’t for the faint of heart. It is not for people who are not disciplined enough to forego immediate gratification in exchange for a future benefit.
You must design a business model with a defined revenue model in order to successfully bootstrap your company. Because the money in your bank account (your savings) will quickly dwindle. You need a business structure that allows you to keep a close eye on every expense.
Step 6: Crowdfunding
Crowdfunding is one of the 7 easy steps on how to raise capital for your small business in Nigeria. Crowdfunding is a new approach for entrepreneurs to raise money. It allows a huge number of people to contribute to the financing of a new company endeavor.
When your savings are depleted and support from family and friends is unavailable, the next financial option to consider is crowdfunding.
Crowdfunding allows you to reach out to many individuals via social media or crowdfunding websites (We have listed crowdfunding sites to fund different types of projects).
Step 7: Strategic Partnerships
If you have a good business idea, you should look for a co-founder or partner who can help you fund it. The partner can be a silent partner, meaning they are not involved in the day-to-day operations of the business, or they can opt to participate in them.
You will need to develop an agreement that spells out the stakes of each business partner. For business continuity, include terms and conditions for each partner. Because confidence is so vital in partnership structures, it’s critical that you pick a partner you can trust.
Why Do You Need a Capital Raising Strategy?
A capital raising strategy essentially serves as a road map for how your business will seek out and acquire the funding required to support its expansion.
The process of raising finance can be time-consuming and difficult. Building your plan, however, is the simplest step in the entire process, although you might stay up late at night looking for new investors, producing pitch decks, and poring over financial spreadsheets.
Just like anything else in business, planning is essential because it helps to maintain focus. Each of these steps could have many more sub-points.
Your chances of success increase with careful planning, which also makes challenging tasks like raising capital more manageable.
You can divide the process into manageable steps by developing a capital raising strategy, which includes:
- Setting clear goals
- Financial preparation and readiness assessments
- Creating the appropriate materials
- Practising your pitch
- Meeting with investors
1. Setting Specific Fundraising Objectives
What exactly you hope to achieve through fundraising is the first thing you should consider asking yourself.
Do you have any particular development or opportunity areas in mind? Why not wait till another time to go through this process? Have you given your business a thorough examination to see where things stand? How much money, by when, and for what purpose do you need it?
If your leadership team includes a CFO, you should get them involved right away. If not, take into account employing a part-time CFO to offer advice and guidance for this particular project. preferably someone who has a lot of expertise in obtaining funding for expanding enterprises.
It is crucial to have someone on board who has connections in the financial community and who can lead you through this process.
In addition to having to operate your company as the CEO, raising finance can be a full-time job. You will require competent legal and tax guidance, readiness for challenging investor queries, and referrals. Making the proper hires today will guarantee that the job gets done.
2. Financial Readiness and Preparation
The next crucial stage is to get a comprehensive understanding of your company’s financial performance and forecasts. Possibly the most crucial action.
As CEO, you must be able to demonstrate to potential investors that your business is prepared for this. You’ll need to show that you’re taking the proper steps to be successful, that you’ve done your research, and that you’ve established some market traction.
Make sure your books have been independently audited and are “clean.” To make your vision a reality, you’ll also need to make sure you have the correct management team in place.
Since these steps are necessary for risk mitigation, serious investors won’t even want to speak with you without them.
Additionally, by carefully examining your firm’s operations and organisational design, you will be able to obtain the data required to determine the kind of funding that is most suitable for your company and to create and deliver a persuasive pitch.
3. Creating the Best Materials for Capital Raising
The goal of raising materials is to pique investors’ interest in your business and persuade them to proceed to the next stage. They will therefore differ significantly from your standard website or company brochures, which are designed for potential clients.
Investors will want additional information, even though they may touch on some of the same topics, such as the distinctive value proposition of your products and services. They will anticipate thoughtfully crafted items like the following:
- The highlights of what you are presenting, in brief
- A professional pitch deck that includes an overview of your business plan, management team, goods and services, competitors, growth trajectory, and plans for future financial expansion.
- Press kit: particularly for an IPO
- Items from your due diligence file, such as patents, contracts, competition intelligence, or any other documents that accurately and legally justify the value of your organisation.
- A detailed financial model showing:
- Important presumptions concerning your company
- the revenue model
- Pro Forma income statement
- the balance sheet
- Cash flow statement
- Analysis of the cost of products sold (the “bill of materials”)
- Personnel (hiring plan)
- Summary results with variance analysis
- Details of operating expenses
- Summary of key investment factors: points that help alleviate risk anxiety
- Pro Forma capitalization table
- Letter of Intent or Term Sheet
- A legal document
You ought to be well-prepared for this one thanks to the preparation and preparedness work you accomplished in the previous phase.
But everything comes together now. This product needs to be incredibly reliable and expert. It must provide a compelling, well-written (but truthful) account of where your firm is now, where you’re headed, and why it would make a good investment.
4. Practising your Pitch
Pitch practice should be factored into your capital raising approach because it is one of the most frequent traps I’ve seen money-hungry firms fall into.
Presenting to investors can be a nerve-wracking event, even if you have confidence in your public speaking abilities.
A few practice sessions can let you communicate your enthusiasm while remaining confident, catching mistakes, and getting ready for the tough questions that will undoubtedly come up.
Think of your proposal from the standpoint of an investor and account for their worries. Better still, if you can test out your pitch on a few “friendlies” who can pose some challenging inquiries and offer feedback on your responses? You can use this to iterate based on the feedback and be more successful in the future.
5. Meeting with Investors
Congratulations! You and a potential investor have a scheduled meeting. Keep in mind to just be yourself when the time comes. Allow your energy, desire, and passion to shine through without coming across as pushy.
Keep in mind that you are not meeting with the US President. Simply determining whether you and the possible investor “fit” will allow you to determine whether there is mutual interest and compatibility.
The investor who ultimately chooses to contribute to your business becomes a shareholder. Respect their time (just as you would a member of your staff) and refrain from boring them with pointless details. And don’t worry, the reliable group you put together in step one will be by your side to help you through any difficulties.
As an entrepreneur and the CEO of a Startup, you understand the importance of capital raising. But the procedure can appear to be a minefield, one slip-up in which your goals could be utterly derailed.
This is why it’s crucial to create a thorough capital raising strategy. It forces you to evaluate your company critically and put everything in order before putting together a pitch deck and talking to investors. By doing this, you can guarantee that the time you spend generating money is worthwhile.
What are Small Businesses?
Small businesses are typically defined as privately owned corporations, partnerships, or sole proprietorships having fewer employees and annual revenue than a corporation or a large corporation.
Examples of Small Business
- Cleaning Services
- Poultry farming
- Hair extension business
- Food supply business
- Fish Farming
- Transportation business
- Phone repair
- Tutorial Centre
- Rental services
- Car Wash
- Delivery or Logistics
What are the Common Ways to Raise Capital?
There are about three major ways firms raise capital, they are:
- From net earnings
- From operations
- By borrowing
- By issuing equity capital.
Debt and equity capital are usually gotten from external investors, and every one comes with their own group of benefits and drawbacks for the establishment.
Frequently asked questions on how to raise capital for your small business in Nigeria
Grant For Small Businesses In Nigeria
Here are some places you can get a grant in Nigeria for business:
- Bill & Melinda Gates Foundation Grants.
- Center for International Private Enterprise (CIPE) Grant.
- Africa Enterprise Challenge Fund (AECF) grants.
- United States African Development Foundation (USADF)
- Ford Foundation grants.
- The Rockefeller foundation grants.
How to raise funds for a project
Ways to fundraise for a project
- Local or foreign funds collections
- Running events
- Sponsored/fundraised activities
- Business sponsorship
- Crowdfunding
- Community shares
Funding Institutions in Nigeria
- Bureaux-de-Change (BDCs)
- Commercial Bank.
- Development Finance Institutions (DFI’s)
- Discount Houses.
- Finance Companies (FCs)
- Holding Company (HCs)
- Merchant Banks.
- Microfinance Banks (MFBs)
Related Searches- 10 roles of small scale businesses in Nigeria
Conclusion
The idea of raising capital for one’s business can be such a discouraging factor, however, your worries are over as a list of several options are available that you can choose from. Now, with the options provided, you have no excuse whatsoever for starting up and excelling in your choice of business.
