How to Finance Your Small Business Start Up
It's been said that the most important piece of a business is its ability to generate cash. Depending on what type of business you have, your funding options range from securing a loan, to selling shares in your company or even bootstrapping your way through debt.
This blog post will provide you with an overview of financing methods and highlight the three typical scenarios: off-the-shelf loans, traditional equity investments (i.e. stocks), and personal loans for small businesses. We hope this post can help you pick which option will work best for your startup!
Here is an introduction to a blog post titled "How To Finance Your Small Business Start Up". The post will guide you through the various financing methods for small business owners. This is a hot topic for all entrepreneurs looking to finance their business.
You might ask what a "start up" is and the answer varies from person to person. Many individuals would define a "start up" as an entrepreneur that's looking to start a new company or business, while others might consider it someone who's established but just purchased another company. However, we'll describe a small business start-up as developing your own small business, rather than buying one already established.
The reason why this post was created is because there are many small businesses that need funding to help aid in their success and growth prospects. These businesses range from being in the early stages of development to a fully functioning business. The marketing strategy is to attract buyers, partners and suppliers (and their existing network) to help these small businesses grow.
The three main questions that are addressed in this post are: What financing options do I have? Will I need a specialist loan? How can I find funding? We hope that you find this article helpful as it can be quite daunting trying to secure funding for your start up.
It has often been said that entrepreneurs are born with one thing – a passion for something, and it's this passion that drives them to make their dreams a reality. It is this passion that will help you succeed in the business world. Bill Gates was always fascinated with computers and Steve Jobs saw the need for a more personal computer – a Mac.
However, before you can start your business, there's something that you must do first – something that many don't realize: getting your funding. The best place to start is by establishing your creditworthiness, or in other words, finding out how reputable your company will be. This is why entrepreneurs need to make sure that their company is established and operate as transparently as possible. This can be done with the implementation of strong business practices and a strong brand.
Once your company is established, financing options are open to you. Depending on what type of business you're starting (e.g. manufacturing, consulting), you'll need to consider different funding options such as equity and loans.
Finance Issues To Consider For Your Business Start Up
Two issues here I want to discuss are: the gap in between cash flow and current liabilities; and the other is pricing – which can be included as an issue for some businesses like online projects or motion picture production companies (see later).
It's important to first understand that business owners need funding for a number of reasons. For example, it might be the case that there's a gap between the cash flow generated by your business and the current liabilities you owe on a monthly basis. This is where financing comes in.
There are typically two types of businesses: those who want to go all in with their product/services, or those who want to take it slow and steady building up their company step by step. Those who are taking things slow need longer term financing rather than short-term loans for day-to-day operations.
There are also businesses that have high liabilities and need short term financing in order to cover up for cash flow and meet their day-to-day obligations.
Sometime a combination of both is needed, so it's important to base funding decisions on the specific needs of the business. For instance, if you're a company where you sell products online, then your financing will be based on the revenue you generate through sales.
Here are more examples of companies which might want to fund using different options:
Post Production: (Video Services): Receiving funds from a distributor or investor to develop new video productions and expand current projects.
Commercial Filming: (Motion Picture Production): Funds are needed to develop the next film and maintain the current staff while they are working on the project.
Heavy Machinery (Machine Shops): Heavy machinery used in manufacturing business of this type is expensive and require constant repair, it's a good idea to have an emergency fund just in case.
Data Entry: Data entry business pays the workers by piece rather than hourly, so the employees need more money; i.e. for those who work 10-20 hours per week, their salary should be at least $1000-$2000 per month.
As you can see from above, businesses in different industries require different types of financing depending on what type of products or services they offer. Remember, whichever type of business you're starting, the more success you'll have, the more funding opportunities you'll be able to secure.
Capital markets (for individuals and institutional investors) are the perfect place to receive funding for your company. These types of investors may include venture capitalists and angel investors. Venture capital is used by start-up companies who want to grow quickly while angel investors are usually involved with start-ups that need capital to help them get established.
If decide to leave your company in the hands of an outside party, remember that it's important find someone who has a track record of investing in successful companies and has a proven track record yourselves. For instance, if you're an entrepreneur who has started a few companies in the past and have failed, it's better to find someone that doesn't have any such failures in their history.
Expenses are one of the biggest factors in calculating your expenses. An expense is any financial expenditure that is incurred by a business. However, they do not include things like salaries and other operating costs; rather they are things like the rent for the office you lease , repairs on equipment and software you purchase, or even some subscription fees (like those for your internet service provider).
This may sound obvious to some people but it's important to consider how much money you're spending on profitless items that won't help boost your profits either. For instance, if you're a business owner and you're spending money on going out to lunch every day with the employees, then that's not the best way to spend your money. The same can be said for entertainment costs like paying for those cable channels that you don't even watch.
Also, it's important to consider which expenses are necessary and which ones are not. For example, if you're a consultant offering IT services and all of your staff are Mac users, switching to PC would not be in your best interest because it wouldn't provide as good of a service as you could give if you kept the Macs.
Finally, it's important to remember that expenses are not the same thing as investments. For example, if you're a business owner and you spend $100,000 on a new piece of machinery to produce your product or service, that is an example of an investment. Even if you don't get the equipment working right off the bat or even make a profit in the first year, it's still considered an investment because it will eventually start paying off in the future.
Unreasonable pricing is actually quite prevalent in certain industries. For instance, when you consider how much a movie like "The Avengers" made at the box office, it's clear that some movies are just way overpriced for what they offer.