If you’re getting ready to lead your business into its first round of fundraising, you might be wondering what general guidelines you can use to determine exactly how much you need to raise in order to increase the company’s chances of success. On the one hand, you don’t want to show up on crowdfunding sites asking for some unjustifiably large sum for no apparent reason. On the other hand, you don’t want to underestimate the company’s needs and wind up putting yourself in a short-handed situation. To make sure you’re setting realistic yet optimal fundraising goals, keep the following three factors in mind:
1. Covering Annual Energy Costs
Pushing energy and utility costs aside when budgeting is a common mistake made by many entrepreneurs who figure that they’ll just cover these expenses using the company’s monthly gross income. Instead, consider the benefits of having the entire first years’ worth of utility expenses set aside in an account. There are a number of platforms that can help you estimate how much your utility costs will be while comparing quotes from multiple providers in your area. For example, UK startups can use sites like Utility Bidder to gauge business energy prices.
2. Leaving Room for Re-Investment
It’s always best to make sure you’ll have a decent amount of profits left over to put towards re-investments and promotional efforts that will serve to increase crucial metrics like sales and conversion rates. This is another kind of expense that many business owners will take from the monthly gross income as they go along, but you’ll have a significant advantage if you aim to raise and allocate a set amount for monthly re-investments in advance. Generally, it’s best to aim to spend at least £1,000 on re-investing in the business each month.
3. Keeping a Reserve for Unexpected Pitfalls
No matter how much time you spend preparing and researching, there’s always a possibility that you could encounter an unforeseen expense. As a rule of thumb, every startup should aim to have a reserve of at least £5,000-£10,000 or more depending on the business model and projected expenditure. Raising an adequate reserve and setting it aside before launch day will ensure that you’ll be protected against emergencies, mishaps, liabilities, supply chain issues, or other problems that could otherwise cause the downfall of your company.
Aim High and Spend Low
Many startup founders make the mistake of setting their fundraising goals at a level that will only allow them to fulfil their core budgeting requirements. While it might seem wise to launch the business as soon as you have the minimum amount needed to do so, it’s usually wiser to be patient and wait until you’ve raised enough to comfortably cover every expense two or three times over. By aiming to raise exponentially more than is needed, you can give yourself a couple of extra chances to recover from budgeting mistakes, which are common mishaps for novice startup owners.