When your business is growing there is one thing that often seems to come up as a problem. The money to fund all kinds of different things. Be it buying stock, paying an unexpected bill or any range of other things that you may need to pay out. While i am no financial planner, there are a few ways that i have been successful in funding my business using a few different methods.
When starting out in business many of the conventional methods of financing are not as easily accessible as later on in the life of a business. Things like Line of Credit, and Overdraft facilities, while maybe available will be more difficult and potentially add additional costs that the business in the short term may find it hard to carry.
As with any area of growing your business you need to be smart about how you go about your funding. But at the same time you also need to be smart about the growth of the business. The biggest tip i can give you is that if you are going to have a lot of trouble getting hold of the money for the growth then maybe you are growing to quickly. While you may not want to pass up a really good opportunity, is that opportunity going to cost you more then just the cost of financing, is it going to bring your sleepless nights and a constant need to meet financial obligations.
I am looking to discuss just three options here today, and while some of them may seem like they will limit you or hold you back, they are really more for your own protection to attempt to stop you from growing to quickly and ending up with a whole lot more problems.
Credit cards can provide quick access to funds, and are often accepted by most wholesalers (however it is best to check). There are a few things you should keep in mind when using credit cards though. First you need to resist the temptation to take a cash advance from the card to pay for something you cannot put directly on the card, this is where the costs can start to add up, as you are paying interest on that money from the day you get it at a high rate of interest. The second thing to remember is that you are much better off looking to pay the outstanding balance at the end of each month, when is due. This is the best way to avoid any surprises on interest or the likes.
Using credit card’s often means that you need to use you own private card. The importance of keeping good records in this case is something that i cannot stress enough, the last thing you want is making some mistakes and then claiming incorrect deductions on your tax, and having it come back to bite you in the future. Additionally from a business point of view it is best to minimize what you buy with the card to just stock, otherwise you will find yourself trying to find the money to pay for something that is not going to immediately show any decent return.
Also using a credit card is a great way to assist with working to a budget in your business, as you are easily able to look at all the expenses or a fair majority of them on one statement.
LOANS FROM FRIENDS AND FAMILY
While this is probably one of the more common ways that people find the money to get started in business, that is the primary reason that i have included it here. I personally have not used this method as i have an aversion to borrowing from people that i do not know if they can afford the potential loss if something should go wrong. While i may not know if the bank can afford a loss or not, it is a different concept their business is lending money and they in most cases are more then aware of the risks. On the other hand Family and friends may be blinded by their faith in you and may not make a decision that is rational.
This being said, it is still from what i can figure a fairly common way of raising funds for a business. The amount that you will be able to raise will vary of course depending upon what your family or friends have available and are willing to lend you. But it should be enough to cover the essentials that you will not recover the income for straight away. Things like furniture, or technology, and start up stock, which often when sold the money will be used to buy more stock. As such these items it is best not to purchase on a credit card as you are not going to be able to repay that money when it is due and start incurring interest.
No matter whether you are going to need your own money or not when starting a business it is essential to have some of your own money saved and ready to use if needed. Either for business expenses or for purchasing stock or even to pay for things that you need while the business is building to support itself. By taking the personal savings path it is going to be a longer time before you are able to start your business, as the fact is savings do take time to accumulate, and just because you want to save does not mean that some fixed expenses will suddenly disappear.
Setting up a savings plan is the best way to work this, have a goal that you would like to save each month and attempt to stick to it. This may mean that you need to cut some of your other spending on entertainment or on non essential area’s. Where you may have eaten out twice a week, maybe you need to cut this to once, if you enjoy a Friday afternoon drink with your mates, maybe you need to cut back the number of rounds you participate in. There is almost always some way that you can cut you spending to even save a small amount each week.
Depending upon whether you are looking to save the money to start the business or just to save a buffer to pay your expenses early on will determine just how much you need to save. If you are just saving for your expenses work out the minimum that you will need per month and look to save 6 months worth of money. If however you want to save the money for the start up of the business as well, look to save this month buffer plus what you need for the start up.
As it stands this would be the last option i would suggest, for two reasons. Firstly it will be one of the more expensive options because you cannot avoid paying interest on what you have borrowed. Secondly it will be the more difficult option as well. Banks really are there to make money they want to know that the loan will be paid bank or they can take something of value in lieu, so you will need collateral, maybe your house or car (depending on value of the loan), additionally if the business does fail, they will be the first ones demanding any money they can get.
You should not limit yourself to just using a single source of financing, there are many ways that you can creatively finance your business, whether by using one of the methods that i have mentioned here or maybe by taking a second job, or later on getting and account with the suppliers. It all comes down to what level of risk you are comfortable with and making that avenue work for you. Please do remember though to consider your circumstances, and consult a financial planner if you are not sure which is the best method for you.