How entrepreneurs can approach funding their businesses
Successful entrepreneurs often say that few, if any, professional endeavours are as rewarding as starting a business and ultimately seeing it become profitable. The journey from start-up to profitable business is long, and it starts even before many companies open their doors.
Funding is a significant factor when starting a new business. Funding a start-up can seem like a daunting task. Here are some tips to help entrepreneurs get their businesses off the ground.
Determine your needs. Entrepreneurs should not begin to seek funding until they've first determined just how much money they will need. These costs will be different for every business, and calculating them requires a detailed analysis of your start-up expenses (i.e., office space, insurance, equipment, licenses and permits, etc.).
Determine your own contributions. Start-ups will not necessarily require outside funding. Many entrepreneurs dip into their personal funds to help get their businesses up and running. This, too, requires careful consideration, especially for entrepreneurs who already have significant financial obligations, such as a family, a mortgage or even another business. Self-funding entrepreneurs may use money from their savings and even retirement accounts, though some may be unwilling to do so. While self-funding entrepreneurs take on all the risk, this approach affords them the chance to maintain complete control over the business. Deciding if reducing risk or maintaining complete control is more important is part of determining if the business will be self-funded.
Consider raising funds through venture capital firms. Venture capital firms typically focus on high-growth companies, so this might not even be a consideration for entrepreneurs starting small businesses which they hope to keep small. If venture capital is an option, entrepreneurs must recognize that venture capital is not a loan, but rather money offered in exchange for an ownership stake in the company. That stake comes with decision-making rights, which means entrepreneurs will not have full control or ownership of the company.
Seek a small business loan. Unlike venture capital, small business loans are primarily designed for entrepreneurs who do not expect their businesses to become high-growth companies, at least not anytime in the near future. Banks and credit unions issue small business loans, but entrepreneurs who want to secure them must provide detailed business plans, expense sheets and financial projections for the years ahead. The more detailed these plans are, the more entrepreneurs will know what to ask for and the more likely the lender is to approve a loan.
Entrepreneurs can raise funding in various ways. Choosing the best option requires careful consideration of a host of factors.