Back to: How to Write a Show-Stopping Business Plan Step-by-Step
- We call the pot of money from which you start or expand your business the s
ource of funds
- . This is in effect a breakdown of the total start up costs identified in the previous activity split across the various sources you are likely to be using. Your source of funds is not just the actual cash money you have available to you – but also the major physical assets the business possesses (machinery, vehicles etc) and any loans, grants, investments or lines of credit you will be using.
Once you know what your needs are (use of funds), and have determined where the money will come from (source of funds), you can subtract the latter from the former to see whether you have enough money available to you to start or expand your business. This figure also becomes your starting cash balance for month 1 of your business’ operation. We will use this figure in the next activity. Source of funds is divided into the following categories and we’ll describe each one below:
- Traditional financial support
- Non-traditional financial support
- Personal investment
1. Traditional financial supportMost established businesses, who receive financial support, do so from a bank or credit union. This may be in the form of a formal business loan or a line of credit.
2. Non-traditional financial supportLess established or new businesses may apply to a less-traditional lender such as a government sponsored not-for-profit organisation whose specific role is to lend money to business start-ups.
3. Personal investmentWhether borrowing from a traditional or less-traditional financial organisation, any lender will expect to see that you have invested, or plan to invest, some personal funds and/or equipment into your business, so this category is divided into cash and assets. Assets are those big pieces of equipment that hold their value relatively well and potentially will provide some security to a lender ie vehicles, machinery, new computers. Assets in this breakdown should be directly related to your business.
4. OtherIn this category you should specify any other sources of funds which are available to you. This may include a lump-sum investment from a third party (partner or relative) for example or a grant. It should not include income from another source (ie an additional job). Again, it must be related to your business.
Case Study ExampleHere’s an example from Mike: It’s time to create your own Source of Funds breakdown. Complete the table in the worksheet or in your own notes.