Raising the capital to buy a business franchise or launch a new company is always challenging. However there are more opportunities available today than asking the bank manager for a loan. Investment is available from a variety of sources including government-backed start up loans, angel investors and crowdfunding.
The latter example has gained a huge amount of traction in recent years, with people raising money for all kinds of ventures. Organisations such as Crowdfunder.co.uk are helping business owners raise the cash by providing a platform to make your business dream a reality. They’re easy to set up, provide all the tools needed to market your campaign, and look after the money and back office.
Recently a prospective franchise owner asked me whether it’s feasible to crowdfund the money needed to buy a business hub. While we haven’t had personal experience of this – instead we generally point people to our partnership with Transmit Start-Ups who provide start up loans to new business owners – crowdfunding is an alternative.
In fact it does have a number of benefits if you want to start up a business hub in your town. Here’s a little crash course in how crowdfunding works and how this could help you buy and build your business hub.
How Crowdfunding works
It’s a simple model. You set up a project – i.e. to raise money to… – on a crowdfunding platform and decide on a target amount to raise. You provide a range of ‘rewards’ for different amounts of money, which if the target is hit your funders will receive. You promote your project using all your marketing skills, getting it in front of the right people and persuading them to become funders.
Once you’ve hit your target the crowdfunding platform will take their fees out of the total raised and transfer funds to your bank account. You’ll need to then deliver on the rewards and get your business off the ground.
Most projects are run using an ‘all of nothing’ model, where if the target isn’t hit, pledges from funders are cancelled (and no fees are incurred). Some platforms allow a flexible approach where pledges can be kept although this is more suitable for charities and good causes.
Benefits of crowdfunding a Business Hub
Perhaps the key advantage of raising funds in this way is the market research aspect of crowdfunding. If you can’t get support for your project from the local business community, it could be an indication of the level of demand for a business hub. Although other factors such as your ability to market the concept and the rewards you offer will also affect your success.
Conversely, if you do engage the local business community and pledges come in thick and fast you’re already building that core base of Hub members ready for when you launch. In fact your rewards could be related to membership* or free events that will help you build your business hub right from the start. However, you must make sure that you are able to balance fulfilling rewards with growing the business and revenue.
Running a business hub is ideally suited to people who provide consultancy services such as business coaches, digital marketers etc. If you have knowledge you can share with your target audience, this could be a good type of reward to offer. For example, for a £10 pledge funders get a copy of an ebook that’s not freely available elsewhere. For £50 – £100 perhaps a 1-2-1 or telephone conversation talking through their business and providing advice and support; this kind of reward could also help you meet prospects for your consultancy business.
As a word of caution, raising relatively small amounts (under £10,000) on platforms such as Crowdfunding.co.uk is focused entirely on your ability to persuade people to pledge their money. People are buying into your vision and dream, for a reward that in most cases isn’t worth a huge sum of money. At the same time since pledges don’t involve a large spend, typically ranging from £10 – £100, your funders are not likely to want to see your business plan or find out about your background and ability to run the business in detail.
However, these things are still important to run a successful business hub (or any business), so don’t overlook them. Raising the capital, doing the market research, building your customer base is all part of this, but you also need to think about what happens once you have secured funding and bought the business.
That’s why I like the start-up loan method of fund raising as this is focussed entirely on your business plan and ability to run a successful business. Yes you need to pay the loan back, but equally you don’t have to fulfil a range of rewards that could potentially eat into profits and take up your valuable time.
The great news is that there are different options. You don’t need to rely on a loan from your bank, there are other ways to raise the funds and start up a business.
If you’re considering setting up a business hub in your town and would like to talk about funding your franchise, please get in touch. Call 07967 631170 or email firstname.lastname@example.org
* Speak to me first about how this will work as it could affect the franchise agreement.