Finding the funds to set up your own business is a challenge in just about any economic climate. Everyone knows that there is a lot of work involved in starting a new business but the financial aspect is perhaps the most challenging for many. While some entrepreneurs are fortunate enough to have loads of money saved up to launch their own business but perhaps don’t have a viable business idea, others are faced with the opposite idea. Many potential business owners have a fantastic business idea, but lack the capital to finance it.
Unfortunately, no matter how groundbreaking or unique your business idea is, it’s unlikely to take off without the proper funding behind it. You will more than likely need a website, office space, tech team, not to mention the various other costs involved in running a business, and this is just the beginning. This, of course, means that you need money.
Whether it’s a cool new app, an import and export business or a posh new restaurant, almost all businesses and entrepreneurs require a bit of funding to get their business off the ground. The good news is that there are plenty of funding tips out there that entrepreneurs can use to finance their business dreams.
Here are a few tips for turning your dream business into a reality.
A detailed business plan is key
Having a sound business plan is crucial to the survival and development of any business. Without a business plan you have no real direction of where your business is headed and investors won’t see any value in investing in your business. Some of the most important aspects to cover in your business plan is research into your market, identification of competitors, your target audience, the opportunity your start-up offers to investors, a thorough financial breakdown including how you plan on turning a profit, and how you plan to implement everything.
Your business plan should be thorough, properly researched, have clear objectives, processes and overall goals. If you want to secure funds from investors, you must be able to present them with a detailed business plan. If you want some tips on writing a business plan that banks can’t resist, then check out this article.
Get advice from experienced investors
Who better to get advice from than those that have already gone through the process right? Not only can they give you insight into how they went about obtaining funds to start their own business, but they will also be able to direct you to the lending firms in which you can obtain business loans at the lowest interest rates.
If you have family, friends or associates that are known for their business minds and have experience investing in other businesses, then these should be the people that you approach first. Pitch your ideas to them, present them with your business plan, and then listen to their feedback. They will probably have some invaluable advice for you. Also, you never know, they could end up investing in your business.
Maintain a good credit score
Essentially, your credit score could make or break your business. If you have a great business idea but poor credit history, it’s highly unlikely that you will be able to obtain any sort of bank loan. Borrowers with a poor credit score are seen as being at a higher risk of defaulting on a loan – which is why banks are hesitant to lend to those with a bad credit score. It is still possible to get bad credit loans however, so all is not lost.
We’re not saying that it’s impossible to succeed in your business if you have a bad credit score, there are certainly other ways to obtain funding. But a good credit score will certainly make things easier. If you have a bad credit score, it’s important that you repair it before approaching financial institutions for loans. Here are a few ways to steadily maintain your business credit score overtime:
- Establish business credit history: The more vendors report a good payment history, the better your business credit will be. Thus it’s very important that you maintain a good working relationship with vendors.
- Keep up to date with taxes: File your business taxes in a timely manner to ensure compliance.
- Maintain a good personal credit rating: Even if your business is a separate entity, your personal credit score will still have an impact on various types of business financing.
A credit card is a great way to increase your credit score. Applying for credit cards, making everyday purchases with them and then paying them off immediately, is a very effective way to improve your score.
You’ve probably heard it a thousand times before but the value in networking cannot be overstated. This is the best way to find investors. You want to build relationships naturally with key people in your industry and local community, rather than having to cold call. Chat with other business leaders, go to local events, and make yourself known in your industry. You could even offer to help other entrepreneurs and established business owners – they may return the favour by introducing you to reliable angel investors or they might direct you to a venture capital firm that helped to launch their start up.
When you’ve done a good amount of face to face networking, you can put these networking skills to good use online. Look into crowdfunding sites like Kickstarter.com which can be a fun and effective way to raise money for a relatively low cost project. You set a goal for how much money you would like to raise over a period of time, i.e. $1000 over 30 days. Your friends, family, associates (hopefully people you’ve met through networking), and strangers then use the site to pledge money.
Make a budget and shop for financing
The budget is the financial aspect of your business plan and it’s essential to gaining investors. Each and every investor that you approach will undoubtedly want to see a detailed financial breakdown, outlining how exactly you plan to make a profit. Here are some important things to consider in your financial plan:
- Estimate your costs: Have a plan in case to cover your expenses for in the first month. Don’t underestimate your costs. The main reason why most businesses fail is that they simply run out of cash
- Understand what types of costs you’ll have: one-time vs ongoing costs, essential vs optional costs, and fixed vs variable costs
- Project your cash flow: Cash flow is vital. You need to know exactly how much money is going out and expected to be coming in.
Once your budget is in place you can start approaching financial institutions. With a thorough financial plan in place, investors are far more likely to buy into your business idea.
Author: Biz Think Tank
BizThinkTank is a dedicated small business website, with a wealth of regularly updated tips and articles. Whether you’re looking to start a business or grow your business, you’ll find a wealth of handy advice and information.