So you want to start a business?
Financing a small business may look like a daunting task to most of us. However, there are a few options that you can use to finance your small business efficiently.
There are debt financing given by banks and other professional financial institutions. One can also go for equity financing that is provided by venture capitalists and angel investors. Some small businesses may even be eligible for small business grants. All this and more, the options available when it comes to financing a business are numerous but what you need to do as an investor is to choose the best financing strategy for your small business. Getting to know more about the options available to finance your small business could be the best step to creating a viable and successful business empire.
Starting it with your own cash
Many business entrepreneurs who have readily available capital from their bank accounts or through the sale of an asset, may choose to finance their businesses from their pockets. On the face of it, this may seem like the best way to finance your business but it is not always the most viable method of financing.
In equity financing, the equity in your business forms the basis of your financing and it is traded for a fraction of your profits. Part of the shares of your business is sold in the shape of stock options to personal investors like a venture capitalist or an angel investor.
It is important to remember that in order for you to be eligible for equity financing; you must have a solid business plan which demonstrates that your business venture is economically viable. It is due to this fact that many entrepreneurs seek equity financing at the growth stage of their business, once a business venture has had an opportunity to develop some history.
Typically, most entrepreneurs turn to debt financing first to try and raise the necessary capital. Debt financing is a term that is used to refer to any borrowed funds. Debt financing may be obtained from banks, credit unions, savings or same day loans, also and other financial institutions and lenders. Financial institutions lend money based on a borrower’s credit history, your character, the collateral you have, as well as the business plan you have laid down.
These elements are used by lending institutions to appraise the borrower and determine his or her capability to repay the loan. Most financial institutions hedge against the risk of losing the funds given to borrowers by purchasing insurance covers for their borrowers so that in case the borrower is unable to pay, the insurance company will pay the unsettled balance. The insurance covers are usually serviced by the borrowers. All borrowed loans attract interest and interest rates are determined by several factors like inflation etc.
Using a credit card
There are several types of debt financing. Most common form of debt financing for small business venture startups is credit card financing. When this method is used well, it is arguably the best and the least expensive method of financing. In this method of finance, no collateral is required.
Also, one gets to borrow money when he or she needs it therefore reducing the interest paid. The problem is if credit card financing is not correctly carried out, it will harm your credit profile, make you pay too much interest, and make you miss out on a number of good tax benefits.
Save yourself time and save yourself money
“Time is money” has been repeated so often that it’s all but lost its meaning – these days it’s normally uttered by someone who’s trying to say “hurry up!”. But, in a business scenario at least, the old cliché still holds truth – wages are still being paid, electricity bills are still ticking up, whether work is getting done or not. The aim now is to waste as little time as possible, using innovations like online project sharing and video conferencing, in tandem with developing a workforce that’s flexible, if not freelance or remote-working.
Read on for some advice on saving time within your new business.
Everyone wishes for a shorter commute, and cutting travel time benefits both work and leisure. Reduce time spent travelling between meetings by using video conferencing instead, freeing up hours to get on with the next task. Letting staff remote-work from home or a small regional office lets them finish the job sooner, and balance family or healthcare priorities; a satisfied, healthy workforce is usually more efficient.
(Stop) hanging on the telephone
Lead generation, chasing up late payments; both crucial, and there’s no need to waste time and money by paying someone to listen to phones ring. Modern telephony systems will auto dial targets and alert operators when the phone is answered, allowing them to get on with something else in the meantime. Important messages can be played automatically, while the new wave of online telephony systems remove the need to buy expensive equipment or hire call centre space. Virtual systems have the added benefit of unlimited capacity, so no call goes unanswered and businesses can scale capacity up or down in direct response to demand.
Hiring freelancers and contractors instead of a permanent workforce cuts both time and costs; freelancers only charge for when they’re working for you, and contractors can be hired on a project-by-project basis, letting them focus on getting the job done.
Set small but regular deadlines and goals
Many people work better with a deadline looming – it makes for a visible goal, something concrete to achieve. Rather than setting one monumental goal (eg “finish the project”) somewhere in the hazy future (“by next Christmas”), break the project into much smaller pieces and set regular deadlines by which to achieve each one. This should keep things moving along more efficiently, and makes it easier to spot potential problems and delays – and resolve them – before they become problematic.
Online project sharing
Working on one shared document with automatically tracked changes, and somewhere to make mutual notes, is vastly more efficient than letting several people work on multiple copies of the same document, which must then be collated, and any conflicts resolved. Use online project management software to enable easy, fast collaboration without breaking the flow of concentration, or the creative process.
Instant messaging, VoIP, email, and even good old fashioned walking across the office for a chat – staying on top of progress usually means that potential wastes of time are identified before they suck in too much investment – of man hours and money.