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Starting up a business isn’t easy. From drafting up a business plan to investing in an office and hiring employees, there are countless things to think about before you can even make your first cent of profit. Unfortunately, things don’t get easier as time goes on either. It’s going to be a rough couple of months to even get your business started and it’s only going to get worse as time goes by.
But everyone starts somewhere, and if you’re relatively new to entrepreneurship and you’re looking to get started with your very first company, then financing is probably the first thing that should be on your mind. So to help you out, here are a couple of practical ways to finance your very first startup and why they’re good options.
Photo by Kelly Sikkema on Unsplash
1. Fund it yourself
Sounds obvious, but you’re likely in a position where you currently have a main source of income that can provide most of the funding required to actually get your business off the ground. Start by funding it yourself with your salary from work. It doesn’t need to be a lot of money either considering how inexpensive it can be to start an at-home business, and you only need to do this for a short amount of time until you actually start making enough money for your business to be profitable and self-sustaining.
Of course, if you’re going to start up a large business or have really big plans, then you’ll ideally need thousands in savings to be able to achieve it. This means hiring employees, renting out an office and purchasing equipment for your business to get started. As you continue growing, you can start to squeeze out more money from your business by optimizing your business model and relying on freelancers and outsourced services in order to scale your business. Eventually, you’ll reach a point where you no longer need to fund it yourself unless you plan to inject a lot of cash into your business for the sake of growth. However, at that point, you’ve likely poured so much time and effort into your business that it’s becoming your main source of income and your day job is just getting in the way of your growth.
In short, self-funding is perhaps the simplest way to get started, but there are plenty of other methods that don’t involve already having a stable income.
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2. Crowdfunding
Crowdfunding is one of the newest ways to fund your business idea and practically speaking, also one of the most effective. Not only is it a way to fund your business, but it’s also a way to gauge how interested people are in your product and also how good you are at advertising it. There are plenty of projects on Kickstarter and Indiegogo that seem like great ideas but don’t get enough exposure, and there are also terrible ideas that get far too much exposure but end up failing to deliver.
One of the biggest advantages of crowdfunding is that you’re able to get funding from your audience. You have an idea that you want to bring to reality and if it’s something that your intended audience also want, then they’ll help you fund it. It’s a simple way of doing business and getting the funds needed to start your business, but there are a couple of pitfalls that you need to look out for.
For starters, failing to deliver on your promises will create an overwhelming amount of negative publicity. This could forever ruin your reputation because, as the saying goes, “the internet never forgets”. In addition, the funding you get often needs to lead to some kind of promise such as delivering special products or privileges to those that support you early on. You also need to create a campaign that is enticing enough to get people to actually fund you, and this requires you to flex those marketing muscles in order to create something promotional that can draw in your audience’s attention. Finally, you also need to have somewhat of a functional prototype or example that you can give your audience. Without something to show, your audience won’t believe your promises and they’ll just chalk it up to wishful thinking. If you want to be taken seriously, then you need to have some kind of demo available to show your audience.
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3. Taking out a loan
Lastly, we have the traditional method of business funding; taking out a loan. There are plenty of different ways to get a loan and there are also many different types of lenders that you can contact. For instance, you could consider speaking to a lender that specializes in businesses, you can speak to your own bank to see if they offer business lending options, and there are even comparison sites like Hero Broker that can help you find a loan for virtually anything. Loans can be a great way to not only start a business but also fund different projects that could scale your business and give you an excellent return on your investment.
However, taking out a loan requires you to be in contact with the lender at all times. You often need to draw up a plan for your business if you’re speaking to business lenders and you need to discuss things such as a repayment plan and even collateral in the event that you’re unable to repay the money. There are plenty of complications that could arise despite it being seemingly quite simple to take out a loan and use it to grow your business.
Your credit rating can also affect your ability to take out a loan, so if you’re already in a poor financial situation then this isn’t a viable option for you. However, if you’ve got a solid idea, a well-detailed plan and are willing to take on the risk of potentially failing, then a business loan can be a great option for obtaining a large amount of cash for your business needs.