Friday, 26 July 2013 13:45

Financing your small business

Most of us would love to start and run a business if someone could promise us that we could do it without risking a thing financially, but there are some tactics associated with small business credit and financing that can help give you the greatest chances of success as you launch your new company:

Bootstrap: The less money you require to start a business, the less financial strain you’ll feel. Growing your startup business organically may take more time and sweat equity than if you just had, say, £1 million to start it! But at least with bootstrapping, your own financial risks are minimal. Plus, you don’t have to take on other investors or sign a contract with a bank for a loan. Instead, you create a contract with yourself for achieving entrepreneurial success.

Start part-time: Treating your start-up like a side job could be your best insurance against financial gaps as you start your business. For financial security, there’s nothing like continuing to draw your regular paycheck as you build your entrepreneurial dream during your off hours. Continued regular income also can provide some seed capital if you can redirect some of your personal spending toward your business and away from leisure or savings for awhile.

Follow this simple equation: It’s unwise to sink more money into starting your business than you could survive losing. Don’t launch your business expecting to fail – but make sure that if you lose everything you put into the venture, you can survive financially. Remember, the majority of business startups do fail. And if yours does, you’ve got to be able to pick yourself up, dust yourself off, and continue to live your life – maybe even in preparation for your next startup!

Use every resource: Make sure you’re accounting for all the possible ways that you can get some dough to boost your business to viability. Try to raise your credit limit in anticipation of using credit cards for your business launch; the higher ceiling may come in handy. Tap into your home equity for a loan. If you’re a boomer, it may be easier than you think to withdraw some funds out of your pension or 401(k) stash. If you’re a good and responsible citizen, you can probably obtain a small business line of credit at your local bank, or a small business credit card. Just make sure before you go in that you’ve got a solid credit score, a thorough business plan, and a convincing case.

Visit friends and family: They’re good for more than just being a part of your cell-phone plan: Friends and family can be a great source of seed capital. Don’t ask them for more than a few thousand dollars, and then only after you’ve invested every reasonable resource of your own. Treat the whole process professionally: Whether you’re hitting up your old college roommate who recently won the Lotto, or kindly Uncle Fred, you want to acquire their enthusiasm for what you’re doing. Present them a business plan just as you would a banker or angel investor. Put everything in a written contract to avoid indigestion the next time you have dinner with them.

Fit it with your life: Make sure that your life plan and your desired lifestyle can survive any possible outcome with your business. Set a goal for cash flow and other financial measures at six months into the business, or at one year, and set up a “decision tree” ahead of time for how you’ll respond at that point. If you haven’t achieved what you planned, you may have to take “Plan B” measures.

Some of the most successful entrepreneurs have started a business with the least in their pockets. But they followed financial strategies such as bootstrapping to make their entrepreneurial dreams come true and to change their lives and you can do the same thing.