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How to Finance Your Small Business Start Up
It all starts with a great idea,
an idea that has probably been in your mind for a long time. You have the
product sorted out, how you are going to deliver your service, where you are
going to set up your office and how you are going to market your new
business. But the stumbling block always seems to be the finance to get you
going.
Finding the
finance to get a small business off the ground is a major issue for any
potential small business. Some new businesses lend themselves to very little
start up capital because the main selling point is the owner's skills and
knowledge, for example consultants, web designers, PR specialists.
Businesses which require stock holding, plant and equipment and other
investment, face the real challenge of getting their start up finance
together.
So what
sources can you tap into to ensure your business gets off to a solid start?
Your Savings
The first
port of call! If you have been in employment for some time then before going
it alone you should hopefully have some spare cash behind you. Whether this
be in the form of cash in a savings account or shares and unit trusts, this
is a good start to your fund raising exercise.
You can be
more focused in saving cash if you have had the goal of setting up your own
business for awhile. Knowing you need to save to get your business off the
ground will make sure you don't spend your future nest egg on unnecessary
items. Whilst a new Plasma TV or the latest DVD Recorder may seem to be an
essential purchase, knowing that you have a business to set up in the future
will be sufficient a deterrent to keep the cheque book firmly locked away!
Keep Your Job
Some business
owners are lucky enough that during the early days of the business they can
keep the day job while working on the business during the evenings and
weekends. This has two benefits. Firstly, they are still earning thereby
allowing more time to build up a cash reserve. Secondly, it's an opportunity
to test out the business to make sure there is a market.
Make sure
that you can realistically keep both balls in the air at the same time
otherwise you will end up doing justice to neither your job or your new
business. The support of your family is also essential if you are to follow
this strategy. They have to accept that what used to be 'family time' may
have to take a back seat until you decide to concentrate on the business
full time.
Family and Friends
These can be
a useful source of finance for any start up. If you have harboured ambitions
to run your business for some time, then many of your family and friends are
already likely to know about your idea. You should therefore have an
indication who is for it and who is against it.
If you
haven't shared your secret desire then it's time to be slightly devious! If
you are in the early planning stages start drip feeding your ideas to key
people whom you think are likely to support you. Tell them your ideas, share
your ambitions and goals and on a regular basis update them with your
progress. The plan is to get them sold on you and your future business at an
early stage.
Once you get
to the point where you are ready to start asking for contributions hold an
Investor Evening. Prepare a presentation outlining your plans, the business,
the market etc. Show the potential investors what their return will be in
recognition for supporting you.
Invite as
many people as you can and promise an interesting and fun evening, Be bold
at the very start; tell them exactly why they are there, so there are no
misunderstandings. After you have done your presentation gather all the
names of the people who may want more information or even a one-to-one with
you.
Whilst this
group are people who know you and so are more likely to trust you, don't
forget that you are developing a very different relationship which can
quickly turn sour. Be prepared for rocky times!
Bank Overdraft or Loan
Now you're
getting into the serious stuff! Getting support from a Bank for a new
business is tough, as many entrepreneurs will testify. One sneaky way is to
apply for an unsecured loan while you are still in employment. If you have
planned things right you will know when you are starting up, so a few months
before you pack your job in, apply for a loan based on your salary. However,
make sure that you can comfortably meet the repayments. There is no grace
period; you will be expected to pay back immediately, so your business will
have to start earning very quickly.
The
alternative is a business overdraft facility. There is no fixed repayment
date, although they will be for periods from 6 to 12 months, and all you
have to do is ensure that you keep within the overdraft limit. You will have
to write a business plan to present to the Bank which outlines your idea and
the business. If you have never written a business plan go to
www.smallbusinesssuccess.biz/small_business_e-books.htm and obtain a
copy of 'How to Write a Killer Business Plan'.
Mortgage or Equity Release
With the way
house prices have been increasing over the last few years, the vast majority
of people now have substantial equity in their homes. The cheaper
alternative to a Bank overdraft or loan is a mortgage. The interest rate is
lower and, as the repayments are spread over a longer period, the monthly
repayment is less (although you will end up paying more interest in the long
run).
The
disadvantage of raising cash this way is that your home is potentially at
risk. If meeting the monthly repayments is dependent on what the business
can generate then a slow start could cause cash problems. So be very sure
you can meet the repayments even during a lean period.
Credit Cards
If you
haven't got any savings, can't get support from family or friends, or a Bank
loan or mortgage, then there are your credit cards! However, whilst it's
easy to draw down on your card, be wary! Credit cards are the most expensive
form of debt.
They are
ideal because all you may have to do is pay the minimum amount but card
debt, as most people have found out, can be a long term burden. But, if you
need a cash lump sum to kick start the business and you know you can pay it
off within a few months, then it's an alternative source of finance worth
considering, if somewhat unorthodox!
Business Grants
Business
grants are available for specific industries, sectors and reasons. Grant
providers will usually only give a portion of your requirement, so they
cannot be used to totally finance a start up. However, they can be useful in
filling a funding gap. For more information on obtained grants see our
free e-book 'How To Get Free Money for Your Business' at
http://www.smallbusinesssuccess.biz/small_business_grants.htm
.
Business Angels
A popular way
to fund a business, if you are looking for amounts between are Business Angels. These are people, usually retired or
successful business people in their own right, who are looking for
opportunities to invest in new businesses.
In exchange
for an investment they will typically look for a shareholding in the
business and some hands-on involvement. They will have a vast business
experience and so are useful people to have on board. However, you will have
to accept an element of loss of control but that needs to be balanced
against your desire for funding.
More
information on Business Angels can be found at
www.bestmatch.co.uk , which is the gateway site for the National
Business Angel Network.
Getting
finance for your new business can be a challenge but there are a number of
avenues to explore and so with dedication and focus you could soon be on
your way to launching your own small business.
© Robert Warlow
Small Business
Success
http://www.smallbusinesssuccess.biz
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