No matter what kind of a business idea you have you will need startup capital to get your business running. When you’re thinking about ways to finance your business, the first thing you have to realize is what you need the money for. Do you need some electronic equipment, office supplies and manufacturing machinery? Or perhaps what are the amounts of legal fees, permits or operating costs. Even if you might sell some kind of cost free service, you would probably want to spend some money on advertising. All these things need money for them to become reality.
You need to also think about how separate your personal life is from your business, for example do you use your own phone or house at running your company. Separating your business assets and liabilities from your personal ones might be costly, but could help you in long run as it would probably be easier for you to keep the business stuff out of your personal life.
The staff of the entrepreneur media Inc. stress in their book Write Your Business Plan, the importance of planning your way into success. So go through carefully all the things that will cost you money when you’re taking the steps to build your business. Analyze all the things you come up with and write down a plan, so you save yourself any unpleasant surprises. After these analyses you should have an accurate idea of how much money you need and it is time to think about where you will get your capital. (The Staff of Entrepreneur Media, Inc. 2015.)
5 ways to finance
One thing I recommend is that you have at least six months’ rent and personal living expenses saved for yourself. Building a business won’t happen overnight, so it is good for you to have some backup money to support yourself. If you have anything left over your personal backup, those personal savings are a good source of capital. (Small Business BC, 2016.) Using your own money means you won’t have anyone else trying to get the profit that you make, or come knocking on your door for their money if you fail. Of course this is only in the case that you have enough money saved, which usually is unlikely.
One way to get capital is bank loans. As our economy is not hitting its best run, bank loans might not be as easy to get as before. This means if you choose to take some business loan, be prepared to inform the banks accurate numbers on how much you need and why. Banks are great source of money, especially, if you need to make bigger investments. If a bank sees you as a person who will be able to pay the money back with interest, you should be ready to go. (Investopedia, 2016.)
You can also consider seeking the money from financial institutions as a form of commercial loan. There are many financial institutions that offer support for starting businesses in a form of capital and knowledge. These type of loans are generally a short-term loans. (Investopedia, 2016.) Read more from: http://www.investopedia.com/terms/c/commercial-loan.asp
You can also use a credit card for your startup costs, if you can qualify for one. Credit cards as a way to finance might get you in big trouble, if you’re careless with it. If you don´t have a limit or a low interest rate, you might have to deal with big future expenses. Don’t go spending money on a credit card that has a 20% interest rate, because it will take away much needed capital from your company. If you choose to use a credit card, be sure that you make wise decisions with it, and that you have the money to pay all your expenses.
Family and friends is for many people a really needed way of support, when it comes to keeping your motivation high as you go along your entrepreneurship path. For some they might be a source of capital, as often people get financial help from their relatives or friends. This is great as usually for example your mom doesn’t want any kind of interest for the investment. Still, risking your personal relationships, is something to think about. Many relationships get strained because of money and nobody wants that.
Other than the things listed above, there are lots of ways to finance your idea. Many of you might have seen a TV show Shark Tank where five rich investors invest in ideas presented by ordinary everyday people. Maybe these kind of investors could invest in your idea in an exchange for an equity.
Also one big thing at the moment is crowdfunding, where you gather money via internet for your idea. Many people post videos of their inventions or starting businesses to a website like Kickstarter. People view the ideas, and if they are interested, they can support you by buying the thing that you are selling in advance. This way you can gather the much needed capital.
One thing to also remember is, that in Finland you can apply for a startup money as an entrepreneur. In the year 2016 the amount is 32,68e/day. This of course isn’t enough for the business itself, but it is something that helps you get through your personal expenses, so keep this in mind. (Summarum+, 2016.)
So before you take the first real step and invest money on your business, do your research. Don’t just take my word for it, but really study and plan. That is the key to success. And if you get setpacks, that is almost certain to happen at some level, you already have a good knowledge on how to cope with them. After you have made the first big investments, concentrate 100% and don’t let anything hold you back. As Fred Kiesner states in his book Creating Entrepreneurs “passion might not be enough, but without it, entrepreneurship just wouldn’t be all that worth-while. Ultimately, successful entrepreneurship is rewarding”. (Kiesner, 2010.) So be ready, be prepared, and at the end, it will all be worth your time.
Investopedia. 2016. Problem Loan Definition – Investopedia. Available at: http://www.investopedia.com/terms/p/problem-loan.asp. Accessed 10 October 2016
Kiesner, F. 2010. Creating Entrepreneurs: Making Miracles Happen. World Scientific Publishing Company. 2010. p.529.
Small Business BC. 2016. How to Finance Your Start-up Business – Small Business BC. Available at: http://smallbusinessbc.ca/article/how-finance-your-start-business/. Accessed 10 October 2016
Summarum+. 2016. Uuden yrityksen rahoitus. Available at: http://www.summarum.fi/uuden-yrityksen-rahoitus/. Accessed 10 October 2016
The Staff of Entrepreneur Media, Inc. 2015. Write Your Business Plan: Get Your Plan in Place and Your Business of the ground. Entrepreneur Press, 2015.