It takes a lot of planning to start a new small business. But the issue of financing is the one that business owners are finding it the most difficult to overcome.
The entrepreneurial world revolves around money, and you cannot launch your business without it. But as with any new startup, and especially of a smaller scale, overcoming the starting costs and creating a steady flow of cash are probably the two things to focus on the most.
So, to help you find ways to finance your new small business, we’ve brought you a guide that you can use to follow throughout your entrepreneurial journey. Don’t go anywhere as we’ll touch on some important aspects to look out for. With all that said, let’s start.
Regardless of the type of business, whether you’ll be employing people or whether you’ll have a physical office, you need to calculate how much money it will take you to get your business up and running.
To cover this easily, there are three important categories to focus on. And those are:
· Business Assets
The first thing you should calculate is your business’s assets, which are your company’s offices, inventory, equipment, machinery, etc. The thing that distinguishes these costs from the rest is that they’re usually one-time costs.
· Business Expenses
Business expenses include anything that you’ll need to spend money on that isn’t a physical thing. This can include stuff such as permits, marketing costs, salaries, a website, setting up an LLC, etc.
It’s heavily advised that you have reserves up to 12 in advanced so you don’t go bust. These reserves should cover expenses and salaries before you start making a profit and breaking even.
As much as 50% of all businesses close their doors before celebrating their anniversary, so make sure yours doesn’t end up like them.
Now, let’s talk about obtaining finances.
1. Friends & Family
The easiest and safest way to try and obtain some money for your startup is to approach your friends and family members. This isn’t anything unusual as many people rely on friends and family for some financial support when starting their small business.
You’re supposed to pay them back, so that gives you extra incentive to start making money.
2. Attract an Angel Investor
Angel investors come under a lot of popular terms but they’re essentially people that are willing to invest in your startup for something in exchange.
In all likelihood, depending on the project, they will ask for a stakeholder percentage or expect you to pay the cash injection back with some fees on top.
Angel investors are described like that since they’re the best thing that could happen to a small startup that is in dire need of finances.
However, this all sounds very convenient, but in all fairness, it isn’t. Attracting an angel investor is quite possibly the hardest thing you could do since it requires you to have quite a special startup.
Some of the things that angel investors look into the most are whether your project has experienced employees, whether you’ve started your company because you’re passionate about it and whether they’ll be notified for any major developments such as a major sale in the future.
Angel investors want to be in control of their finances, and they won’t invest in someone that will keep them in the dark.
3. Get a Loan
The most convenient way to finance your new small business is to get a bank loan or a loan from any other financial institution.
Our current economy isn’t very great due to a lot of factors. However, one thing that concerns you is the fact that lenders have gotten quite stricter when giving out loans.
This is because banks require you to have a spot-on financial record. Without having this box ticked, you will be labeled as a risky case, resulting in rejection of your application.
This is precisely why people with new startups have resulted in doing business with other financial institutions.
One such is Bellwethercap that lets you take out a loan without taking into account your credit score. With them, you can get a car title loan that gives you the ability to receive a cash advance against the value of your car to spend in any way you choose. In your case, the money will go into financing your small business.
Crowdfunding is super popular nowadays as it gives you the chance of impressing a lot of people into donating money for your cause. Crowdfunding sites such as Kickstarter.com are an excellent way to approach this option.
When you make an account with Kickstarter, you’re supposed to set your objective or goal. You’re also supposed to set a timeframe in which the money has to be raised.
On your Kickstarter page, you’ll have to describe what your business wants to be, what the product or service will be, in a chance to impress the people into pledging money.
A very popular theme amongst crowd funders is to offer incentives for pledging. For example, if someone pledges $50, you’re supposed to give them something back. Kickstarter has helped more than 10,000 projects get the much-needed finances to launch and has roughly more than 200,000 people pledging every year.
This one might interest you the most as chances are you’re unemployed and want to start your very own business. Well, the easiest way to get the much-needed money is to tap into your 401(k) that you’ve accumulated over the years of working for others.
However, a lot of people will tell you otherwise since you’ll have to pay taxes for the sum accumulated. While that might be true, there are ways to go about it without paying any penalties.
Fortunately for you, there are experts out there that know how to do it. All you have to do is find them and explain your case to them.
These are some of the ways to finance your new small business, but there are tons of others as well that we didn’t touch on.