Updated date:

Funding Sources: Partnering With A Major Customer

Being an entrepreneur and starting a new business venture can be a daunting task. With all of the factors to consider, it can be easy to get lost and overwhelmed. The one factor that seems to create the most obstacles is that of funding the start-up. Funding a start-up requires immense research into the industry and the money to turn the idea into a reality. There are many potential ways to begin this process of funding the start-up, such as personal funds, angel investors, crowdfunding, venture capitals, bank loans, etc.

Beginning a start-up is often a challenging idea to wrap your mind around due to the assumed amount of money it takes. Often, however, these assumptions are way higher than what is necessary. According to smallbiztrends.com, a third of small businesses get started with less than $5,000, and 58 percent got started with less than $25,000. The three most popular small business financing methods in 2019 were: Personal funds 77 percent; Bank loan 34 percent; Borrowing from family/friends 16 percent.

A consistently chosen option in entrepreneurial circles is that the way to begin and build a financially successful business is to develop a promising idea, write an effective business plan, raise the needed capital, and proceed to make off of the found success that will come. In most cases, it doesn't happen that way. Many fast-growing companies never raise venture capital. So, what alternative could an eager entrepreneur utilize to get their venture up and running? Customer funding could be a solution.

Invstor defines customer funding as a business arrangement between a vendor and its customer. The customer agrees to provide the vendor with some level of up-front financing in advance of the product or service delivery. Law Insider describes it as any investments in client or customer assets identified in the borrower's books and records, whether held in trust accounts or otherwise pursuant to investment policies established by the borrower and its subsidiaries from time to time. The intention of such arrangements is usually to partially or wholly fund a vendor's product development.

Partnering with a major customer could be a potential win-win solution that quickly builds valuable connections for your start-up. My business idea, a second-hand golf shop, could specifically benefit from a few key partnerships with customers. When developing a business plan, I created a list of potential major customers that I could partner with, and one of those was nearby golf shops that are on courses. This would be a particular partnership, but one that could reap benefits for all.

More often then not, golf shops on courses do not do repairs. Usually, they have a small stock of high-end clubs (whoever they have partnerships with) that you could purchase on site. This is where I could see a collaboration developing. My company would offer independent repair to golf shops' clubs, such as grip replacement, shaft sizing, and head repairs.

A roadblock that I then ran into was the actual funding aspect of the start-up. With a successful business plan that I could present to partners, I would request funding to buy necessary equipment for the repairs on clubs that I would be doing for their customers. Since we would be in the same industry, have a good working relationship, and profit from a partnership, why not? Funding could also come in many different forms. Examples could include buying older clubs they are trying to get off their floors at a discounted price, marketing our businesses to each other's customers, and sharing knowledge and trends.

Overall, partnering with a significant customer should be beneficial for both parties involved; if not, you are probably choosing the wrong customer to partner with. Funding can be a challenging mountain to climb, but with research and adequate planning, it can be an accomplishable goal that sets you and your business up for success.