Financial funding is the most important first step to planning for and starting a new business. Without it, your business idea can’t even get off the ground. There are different options available to people who want to start their own business, and these options will affect who is in control of the business and how it is run. As a part of your business plan, you need to estimate how much money it will take to start and run your business for the first year or so. Once you’ve done that, we can take a look at how to fund a small business with some of the most common financial strategies.
How to Fund Your Small Business with Bootstrapping
Bootstrapping is also known as self-funding, in which you provide the finances and take on all of the risk yourself. While you take on the risk completely, you also regain total control of the business and how it is run. For many entrepreneurs, this means dipping into their savings or retirement accounts. Personal loans may also be secured from close friends and family members where possible. Some people choose to take an unadvisable gamble and take out a mortgage on their home when desperately seeking ways of how to fund their business. According to the U.S. Bureau of Labor Statistics, about 20% of small businesses fail within their first year. That is a large risk for new business owners to take when leveraging their home.
Pitch to Investors
The TV show “Shark Tank” is a great example of how small businesses seek funding to start or grow their company. Basically, a new business shares their business plan with prospect investors while they give a pitch deck presentation to help simplify and sell their idea. The pitch deck presentation involves using a projected slideshow to get the investors’ attention, pose a problem or societal need, state the target consumer, and give a solution. The solution is the main purpose of your business. You then pitch a proposal for the nature of the funding that you need. If your presentation is engaging and convinces the investors that your business is a good idea, you may just secure the funds you need.
Finding the Right Investors
Do your research on individual investors, sometimes called “angel investors”, and venture capital firms when seeking ways of how to fund a small business. You will want to look for investors with a solid reputation and experience in working with startup companies. If you are successful in your pitch and application, the investors will strike a deal with you that can involve interest amounts on the loan, royalties on products sold, or a percentage of control of the company. Depending on who your investor is, they may also be able to offer additional benefits of industry expertise in areas like marketing and sales. Before you attempt to gain investors’ funds, be sure you have a well-researched and thought out business plan. You may want to seek an advisor’s help to ensure you have a solid base for gaining the capital you need.
Crowdfunding is a popular new way of how to fund a business while regaining full control of the company. You may have heard of websites like GoFundMe that have helped lots of businesses get off the ground, as well as helped people raise money for their healthcare needs, charities, and other fundraisers. If you have a really great idea, a crowdfunding platform combined with some exceptional promotional materials could be all you need to secure financial funding. People who donate to crowdfunding efforts might be promised a free product that you plan to offer, a discount on products or services, other perks, or nothing at all.
Apply for a Small Business Loan
While it may have been a lot easier back in the 1950s to secure a business loan from a bank, it’s still very possible today. How you fund your small business starts with having all your ducks in a row, including a solid business plan, expense sheets, and financial estimates for the cost of running your business for the next five years or so. This is another instance where a financial planner can help prepare you for success when you face the scrutiny of bank personnel. Banks and credit unions will need to be sure that they will be able to regain their capital before they decide to approve you for a loan. Apply to different institutions and see how the interest rates and terms for funds compare for a small business.
Your business idea may be out of this world and you may have lots of experience in your industry, but you may not have much knowledge about financials and other aspects needed to start and run a business. At BizCentral USA, we have experts who can help you throughout the entire process, from writing a business plan, to accounting, incorporation, and more. Contact us today to see how we can help get your business funded and up and running.