As anyone who has launched their own business venture can tell you, financing a startup is not for the faint hearted. Whether your plan is to employ bootstrapping methods, i.e. self-financing the initial capital, or to take out a loan, you inevitably risk major money problems if the business performs poorly.
Although all new business ventures carry an element of risk, there are multiple methods of limiting the possibility of accumulating massive debt. Doing extensive market research, for instance, should help you foresee certain setbacks. You could also limit outlays in your leading years by working from home and renting equipment (in lieu of buying) until the business reaches stable fiscal ground.
However, at some point or another, you and your bank account will have to go out on a limb.
Where does financing begin?
First of all, having a clear cut business plan should provide you with enough insight to estimate how much initial capital you’ll need . In general it is better to overshoot slightly and ensure you have enough to cover unforeseen expenses and maintain a healthy cash flow.
Once you have a figure in mind, your financing options become clearer. Do you think you could reel in one or more investors? Are you willing to report to them about growth and profits once the business has taken off?
Generally, as long as your credit record is positive and your business plan sound, a bank or alternative registered credit provider is your best access to sound financial assistance. Opting for corporate finance means you’ll have more freedom when it comes to making decisions, but it also means you’ll carry sole responsibility for debts.
The dos and don’ts of starting out with a loan
The golden rule of business financing is to incur any and all debt in the name of the business. You may be tempted to delve into your personal credit, but beware of this slippery slope.
Using your personal credit card, or even a business credit card means your limit on expenses is compromised. The difference between a credit account and a loan might not seem significant, but your credit limit might be more than what you need, making it very easy to abandon your carefully set-out budget and business plan. To keep your financial decisions frugal, stick to your initial capital and wait until you can use profits to purchase the indulgent extras.
If you do find that your initial capital is not sufficient, and you have already cut expenses down to minimum, speak to your bank.
Once things are on the right track, it is time for you to purchase the assets which you have been renting. Perhaps you need to consider getting a mechanical warranty in place, should something unfortunate happen and you need in later.
Whichever form of financing you choose to kick-start your business, your success is largely determined by your ability to plan, adapt to unforeseen challenges and hang in there during the challenging times.