fund dilema

Discussion in 'Growing and Managing a Business' started by elids1979, Apr 21, 2010.

  1. elids1979

    elids1979
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    hi all
    recently my friend and I wrote a business plan regarding languages school for the arab sector in israel
    initial losses (including investment and returning capital) are estimated at about 150000$ in the first 3 years, and later, about 50000$ profits every year
    problem is , that my friend has about 10,000$ to invest, i intend to invest the same amount he can, since we want 50% each
    he says he can put more money if necessary by taking a loan, for me it sounds like a bad idea, and i adviced him to start accumulating more capital before starting a business.
    what are your thoughts, do you need capital in order to start a business like i described, or you can take a loan at a bank for a business that is expected to lose money over the first 3 years?
     
  2. Kay

    Kay
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    If you approach the bank with your business plan and they think it's unworkable or isn't likely to turn profitable in the near term, they won't lend you the money. Simple as that. They don't risk losing their cash. Looking at it another way, asking for a small business loan is probably the best guide you'll get about its chances of success.

    Your friend shouldn't get a personal loan to fund the business if that's what he means btw. I don't know how it works in israel and am assuming that's where you're setting up shop, but he could well be putting all his personal credit and assets on the line by doing so. Business funds and personal finances should be completely separated.

    Consider looking into government agencies that support small businesses with funding. I did a quick search and found that there's a Small Business Authority of Israel whose role amongst other things includes helping small businesses find funding to help them get started. They do that through Small Business Development Centers (SBDCs).

    You can read a lot more on that here: Small Business Encouragement in Israel. Don't miss the part either on The State Guarantee Fund for Small Businesses on the same page.

    Apparently there's a lot of help available for entrepreneurs from them. I'd encourage you to seek them out and see what they can do for you and your fledgling business. Good luck! :D
     
  3. Fergal

    Fergal
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    elids1979 that sounds like a big investment for starting off your business. Have you and your partner got business experience that gives you confidence the business will be successful? Is your business plan well researched and realistic?

    Have you considered ways that you could start the business by keeping your start up costs lower? For example you could initially run the language school for small groups and hire out a meeting room in a hotel or business centre, for delivering the classes. You could even start with one on one language lessons, from your own homes or your clients' homes. These options would allow you to test the idea and gain experience in the business, before you make a substantial investment.

    You say that your business plan shows a loss for the first three years, that is a long time to be showing a loss. Does your business plan include the purchase of a property? If it does, your financial projections should write off the investment in that property over about 20 years, i.e. don't show the total cost up front.
     
  4. elids1979

    elids1979
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    Hi guys, thanks for the input
    Kay, i was thinking the same about seperating personal fund and business fund, i dont think that taking a loan and running a business under pressure will do us any good, especially since we intend on losing money in the first 2.5 years :)
    I will sure check up on the state funds option, thanks
    Fergal, about the business projection, yes, it includes investment and also our salaries..
    We have decided to include those (I have basic knowledge on the subject since i am an accountant and currently work at corporate finance field) is that i care more about the cash flow of each year than the actual net profit, so i took into account in my dcf the investment and returning capital.
    about your suggestions of cutting costs, we will definately apply them if we see that our capital is not enough to sustain the current business plan and to check the surface before investing money, not having experience in doing business is a problem for both of us, but this can only be solved by starting one now..
     
  5. Kay

    Kay
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    You're welcome, elids1979. You may also want to look into angel investors. I don't know if that concept is a popular one in your part of the world but it's always another option to consider. From what I remember some angel investor organizations also provide experienced business mentors to help start-ups. Sorry I'm fuzzy on the details! It's been a long time since I read up on them.
     
  6. Fergal

    Fergal
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    Thanks for the update elids1979, I agree that the best way of getting business experience is by starting a business yourself and this is definitely something that I would encourage you to do. My only caution would be that you would probably benefit most from the experience if you start with something small and then grow the business. Starting a big business from the outset can be extremely difficult and challenging. Plus potential investors will be less likely to fund the launch of a big business, if the founders do not have business experience behind them.

    Good luck with everything and please do keep us posted on how everything is working out for you.
     

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