Entrepreneurs who have decided to set-up their own business startup must make a number of plans and assessments. One of the most crucial of these is in determining how much financing will be required to kick it all off. Without an adequate source of funds, a business can simply not get off the ground and pay the bills while building its brand. Here, we’ll tour a few of the avenues available to the entrepreneur when assessing the financing needs for their startup.
The Types Of Financing A New Company Needs To Get Off The Ground
1. Start Up Costs. These are costs directly associated with starting up your new business. These can be fairly expansive – for example, company incorporation costs, legal fees, licences, the purchase of crucial equipment and so on. In many cases, these will be one off expenses and will also be different for every unique type of business.
2. Working Capital. This relates to the everyday expenses that will need to be met in the running of the company. When you set up your business you’ll need to spout funds to cover things like inventory, staff wages, rents and rates as well as the servicing of debt. These costs can accumulate quite starkly, and may not be soothed by any revenues during the earliest stages of business. It’s worth noting that a lack of working capital is often cited as one of the most common causes of new business failure. Be generous when accounting for working capital within your plans and budgets.
3. Reserve Funds. It takes a brave entrepreneur to believe that their budgets will be spot on. Hopefully, any variances might work out positively (you allow for more working capital and start up costs than it takes) – however, in the event that you underestimate the costs, your reserves are the funds that can step in and plug the holes.
You might be wondering where all the money to set up your startup will be coming from. There are several options, such as the below, and many entrepreneurs will use a combination of these to raise the startup funds they require:
- Personal Savings. Some entrepreneurs may have a lot of cash, and an equivalent amount of faith in their abilities. They can then choose to use their own personal savings to set-up their business.
- Family & Friends. Most of us have well wishers who might be willing to step in and provide at least part of the funding needed for a startup project.
- Banks. One of the most common routes to access new business finance is via your local bank. When approaching a bank, it’s key to be highly organized and have a well manicured business plan that shows how the banks money will be used. The bank needs to be assured that the owner is able to get the new business to breakeven before all their working capital is tapped out.
- Peer To Peer Lending Websites. An increasing number of companies are raising business finance through the new peer to peer lending industry. The concept is quite simple – the website matches investors (people from the public) with borrowers (you) without the need for a bank.
You can read more about raising business finance here.