One of the biggest decisions you’ll make in the early days of starting a business is how to fund it. Experts typically recommend not only factoring in overt start-up costs, like equipment, but also having a few months’ worth of operating expenses stockpiled before you go live to insulate against the ups and downs that can occur. Entrepreneurs take many paths to securing financing for their companies and handling those funds over the subsequent months and years. In today’s world it’s safe to say there are more options for small business financing than ever before. Understanding all the options available to you can help you go from feeling overwhelmed to empowered. Here’s more on some key small business financing essentials for the modern entrepreneur.
Assess Your Financing Needs
The first step is always coming up with an accurate picture of how much you’ll need to launch and sustain your company through its fledgling stage. The good news is that if you’ve ever put together a household budget, then you already have practice doing this — the categories and line items will just look a bit different.
There are two main types of costs for which you’ll need to plan: assets and expenses. Expenses are recurring costs — like payroll, rent, insurance premiums, website hosting, etc. Assets are one-time investments — like equipment and supplies. So, your budget will need to differentiate assets from expenses so you can calculate your start-up costs as well as your ongoing monthly expenditures.
The amount of start-up funding you need as well as your financial history and preferred method of repayment will affect how you ultimately finance your small business. Starting this way will enable you to get an accurate view of the first few months of doing business and come up with a working estimate for how much money you’ll need to make it happen.
Explore Different Methods of Financing
Now that you have a number in mind as to how much you realistically need to get your venture off the ground, it’s time to consider the finer points of various financing methods.
One popular tactic is debt financing, which entails taking out a loan from a lender. Many entrepreneurs appreciate the predictable repayment schedule here. However, getting approved for such a loan also typically requires strong credit — meaning it is not necessarily an option for everyone. It’s worth exploring traditional banks as well as more flexible online lenders.
Another option is getting buy-in from a venture capital firm or an angel investor who believes in your potential. Keep in mind any possible investors will expect to see an airtight plan for how you plan to spend every dollar and the return on investment you expect to make.
Some businesses have had success tapping the public for start-up funds, especially if you are providing a product or service that excites people. There are many platforms to support crowdfunding, some of which allow you to offer rewards for certain donation amounts.
Shore up the Basics: Accounting, Taxes, Insurance
Although it’s far from the most glamorous part of owning a business, building a solid financial foundation requires understanding the importance of good accounting, tax preparation, and insurance policies. When you’re filling out your budget, be sure to plan for these expenses. It’s worth investing in the right software or contractors to make sure this part of your financial plan is on the up and up.
Mastering these small busines financing essentials will help you launch, sustain, and grow your business on the bookkeeping end of things — allowing you to execute your strategy and meet your goals supported by a solid foundation.