Money makes the world go round, and this is especially true for new enterprises and start-ups. You will never grow if you do not have the cash to get started. It is important to understand the ins and outs of obtaining business finance and capital from funders.
Sulaiman Patel, social entrepreneur and grant-making officer, shares his expertise regarding the specifics funders are looking for when farmers are applying for funding. He also sheds light on important things to avoid when applying for start-up funding.
“One of the main reasons why start-ups don’t get the financing that they need is because they don’t have their financial projections and financial plans in order,” says Patel.
According to Patel, it’s important to have realistic projections for 12 months. “Funders would like you to create a comprehensive business plan, and in this plan, you need to clearly articulate your goals.”
The goals funders look at are the following:
- Projected expenses
- Expected revenues
- Return on investment
Calculating the start-up costs is another point in determining the initial expenses to launch a business. If you don’t have the land, what are the expected costs of acquiring the land, equipment, and just general start-up costs?
“Essentially this will help yourself and the funders have a clear understanding of what your financial needs are and how to officially allocate the resources that you currently have at your disposal,” Patel says.
Keep detailed financial records
There is nothing more attractive than a business that has its money in order. Patel says having a professional person working on your business account from the get-go will give the company a great boost.
In this way, farmers learn the proper systems and it sets them apart from a messy financial state. “Farmers need to establish a robust accounting system to track their cash flow because it is key, and having the accurate understanding of your cash flow is very important.”
He advises the following:
- Keeping separate bank accounts.
- Register with the right entities like Sars.
- Keeping a sufficient record of purchases.
This will give the funder a lot of confidence that all finances are on track and as a farmer you know what’s going on in your business.
Mistakes could cost you
Avoid silly mistakes when applying for funding, especially within the start-up phase, with unrealistic projections that funders can see no vision in.
Patel advises that potential incomes must be realistic. “It is important to have conservative estimates and for unforeseen circumstances that may occur.”
The markets are volatile in South Africa, including the prices, so overestimating those revenues on the business plan could be your downfall. “Funders see right through those overestimated revenues because funders know the markets well. They will be able to point out directly whether it is realistic or unrealistic to achieve.”
Relying on the end results
Patel further explains the danger of only looking at your end results. One of the biggest mistakes made by farmers applying for start-up funding is the fact that they look at the end projections without considering inflation or potential market value in South Africa.
“But what farmers do not consider is the risk appetite and they are willing to take on too much debt, finding a balance in your funding when it comes to start-up funding is crucial,” he says.
“Knowing the nitty-gritty also allows for improved resource allocation. Helping you as a framer run a more efficient operation.”
Multiple sources important
Patel says that it is important to seek multiple sources of funding. It is not wise to depend on grant funding only as it is limited and cannot always sustain business.
“You need to explore a combination of funding options. This is going to help you mitigate risk, but farmers, I urge you to risk some of your capital. It gives you ownership of the project and a sense of accountability.”
Patel recommends approaching your local commodity organisation or provincial organisation. “Reach out to them and ask about the development they are doing. They have very good programmes,” he says.
There is a plethora of funding opportunities available. It is important to see what the minimum requirements are and if you meet them before putting in an application.
These organisations can assist:
- Grain SA (runs a great project)
- Cotton SA
- Agri Enterprises
- Land Bank of South Africa
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