Business Idea Financing
Have you ever had a great small business idea that you were afraid to use just because you did not have the requisite finances? Well you need not dismiss your ideas just because you find it an uphill task to seek after capital. In fact, if you are thinking about starting a business, the available sources could sometime end up bringing overwhelming positive productivity than you can imagine.
Here are some of the critical aspects that you should consider when you are in possession of that small business idea.
Business Plan – this is a formal statement of a set of business goals. It may contain background information of a business and your projection of its ability to return profits in future. You should write a comprehensive business plan which should gather enough information, both personal and industry related.
Determine the amount of funds you are likely to need –This will include start-up funds and sufficient capital to keep the business stable until your revenue breaks even with your expenses. Budgeting for the anticipated expenses, for example rent, salaries, equipment and furniture to be purchased and office supplies will be a very good business idea. This will lower your chances of running out of cash.
Hiring a reputable law firm to set up a legal structure of your business –Most lenders and even suppliers will want you to have a “business vehicle”. This will also help protect your asset and facilitate financing. It always advisable to make use of an experienced firm that handles incorporation and business registration.
Working closely with tax, legal and accounting advisers – It is a very vital business idea for a budding investor to seek advisory services. These will advise you on whether it is appropriate to take up debt financing or equity financing. An analysis of pros and cons in both should be clearly understood to avoid surprises.
Negotiating with vendors that you plan to use – This is an essential business idea in the sense that it can cut on your start-up costs. For example, if you negotiate with vendors to provide products or services upfront in return for full settlement plus interest within a specified period of time.
Sources of financing
- Personal savings – This is a common source for these with small business ideas.
- Friends and relatives (angel investors) - Many business starters look to private sources like friends and family when starting out in a business venture. The advantage of this method is that money is loaned out interest free or at a low interest rate which can be beneficial when getting started.
- Borrowing from an institution you have proven track record with - It is easier to borrow from a bank that you have a good relationship with than from a new lender. Chances are that your idea may be better received as you have a proven record.
- Put up collateral – collateral means a security or guarantee. This is usually an asset pledged for the repayment of a loan.
- Tap in to your own assets – If you have valuable assets then you can borrow against them to start your business. Home equity is the common choice with the added advantage that interest’s payment is tax allowable (tax deductible).
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