Get funded - Part 1 - How much do you need and why?

First things first, let’s dive into understanding exactly what you need money for. This step is crucial because it sets the stage for everything that follows.

Define your purpose

Start by clearly stating why you need the funding. This clarity is key for both you and your potential funders. Here are some common reasons and questions to help you define your needs:

• Expanding operations: Are you looking to increase production, open a new location, or enter new markets?
• Buying inventory: Do you need to buy in bulk to meet demand or stock up for a busy season?
• Investing in equipment: Is there new technology or machinery that can boost your efficiency or product quality?
• Hiring staff: Do you need new team members to scale your operations or bring in new skills?
• Product development: Are you working on a new product or service to stay competitive?
• Covering costs: Do you need a buffer to manage cash flow during slow seasons or unexpected downturns?

Figuring out how much you need

Let's figure out exactly how much funding you need. This step involves looking closely at your current resources and estimating the costs for what you want to achieve. Here’s how you can do it:

Estimate projected costs

For each purpose you’ve defined, estimate the financial investment required. Be as precise as possible by considering quotes, market research, and expert advice.

Duration

Assess how long you’ll need the funding before the investment starts paying off or generating revenue.

Current resources

Identify what assets you currently have that could support your funding application. This might include:

• Sales records: Showing strong sales can prove your business's viability and potential for growth.
• Committed interest: Letters of intent or pre-orders from potential customers can demonstrate market demand.
• Assets: property, equipment, or other valuable assets that can serve as collateral for secured loans.

Business example

GreenTech Innovations

Expanding production

Purpose

We want to expand our production capacity to meet the growing demand for our ecofriendly packaging solutions. This means leasing 1,000 square meters of factory space, buying two more biodegradable material processing machines, and setting up the new production line.

Our sales have grown by 40% year-overyear for the past two years, showing strong market demand. Expansion will help us meet current orders and attract new clients, positioning us as leaders in sustainable packaging.

Estimated costs

Expansion of production facilities

1. Lease of additional factory space: R 1,000,000 (includes lease for 2 years and minor renovations)
2. Purchase of biodegradable material processing machines: R 2,000,000 (R 1,000,000 each)
3. Setting up new production line equipment: R 500,000 Duration The investment is expected to generate additional revenue within 18 months after expansion and hiring. This positions the company to break even on the new investment within 3 years.

Duration

The investment is expected to generate additional revenue within 18 months after expansion and hiring. This positions the company to break even on the new investment within 3 years.

Current resources and collateral

1. Sales record: GreenTech Innovations has shown a consistent year-over-year growth of 40% for the past two years, with last year's revenue reaching R 12 million. This strong financial performance highlights our market position and growth potential.
2. Committed interest: We’ve secured letters of intent from five major retailers who are committed to purchasing our expanded product range once it’s available. These pre-orders are estimated to boost our sales by an additional 25% in the first year after the expansion.
3. Assets: The company owns fully paid-off manufacturing equipment valued at R 3 million and holds intellectual property rights valued at R 2 million. These assets, combined with a strong sales record and committed interest, can serve as collateral or strengthen our application for unsecured funding based on the business's viability and growth potential.

This assessment shows how GreenTech Innovations carefully calculates its funding needs against its current resources. By providing precise cost breakdowns, a realistic timeline for the return on investment, and leveraging strong sales performance and secured commitments, the company clearly outlines the amount of funding required and demonstrates a solid position for a successful funding application.