When funding your startup, your goals may be modest or expansive; either way, you’ll want to start off on the right financial footing.
Funding a startup may seem either easy or daunting. Much depends upon your previous experience with finances.
Entrepreneurs who have dealt with financial matters in the past may find some of the following advice superfluous. On the other hand, those with little to no financial experience can find the whole process of funding completely terrifying. The following best practices for funding your startup can help anyone find a safe and sane way to finance their startup dreams.
Establish how much funding you need to get started.
One of the best ways to discover just how much money you’re going to need for your startup is to consult with someone who is already in the same business. If they’re friendly and honest, they should be glad to share that kind of information. Don’t push them for specific sums. Instead, keep your questions general and vague. Some of these questions might include:
- How easy was it for you to get funding?
- Where did you go for funding?
- If you had to do it all over again, where would you go for your financing?
- Approximately how much do you think it would take to begin a startup today?
There are plenty of apps on the market that will calculate costs and expenses for your particular startup. Some are free, some are not. Regardless, there’s no need to hire any kind of financial advisor or expert at the beginning of your quest…as long as your basic dream is not too complicated.
However, finances and funding your startup are always intertwined with the law. And with taxes. So make sure you have access to legitimate legal advice and tax expertise. Once you’ve decided, you’ll need to begin your great adventure. Start by canvassing the options that are reasonably available to you.
Fund it yourself.
Once you’ve calculated the amount it will take to get your dream off the ground, first look at your own resources. Is it possible you could consider funding your startup on your own?
Savings accounts. Life insurance equity. Loans on personal and private property. 401(k) accounts, and so on. If you are very risk-averse, you’re not going to be very comfortable gambling all your own assets in one throw. Then again, if you are that risk-averse, you probably shouldn’t be an entrepreneur at all!
Obtain venture capital through investors.
If you’re open to sharing your startup ownership with others then linking with a venture capitalist or two is a sound financial decision. Funding your startup most often requires opening up to others.
Venture capital is not a loan. Venture capitalists are willing to take bigger risks than bankers. This means they’ll demand a bigger piece of your pie. The nice thing is those venture capitalists usually take the long view of their investment. Most will not press you for immediate returns. There are fewer papers to sign, meaning fewer hoops to jump through.
But venture capitalists are a cagey group. They often go by first impressions and gut feelings. So you may have a dynamite presentation ready for them, but if they like the cut of your jib they may waive all the paperwork and sign up immediately.
How about crowdfunding?
Crowd funders are not investors in the traditional sense. These are people who like your startup idea and are willing to contribute to it. In return, they expect some kind of gratuity in the form of free samples, free membership, or just a thank you mug.
Usually, it takes a lot of crowd funders to take in a sufficient sum to get your startup off the ground. But with today’s social media expansion a mention of Facebook or TikTok may get you all the crowdfunding you can handle.
Be sure to keep meticulous records of each crowd funder contribution. The IRS is often very curious and intrusively interested in crowdfunding money.
There’s always a small business loan.
If your credit is good and your confidence is high, and if you have some connections in banking and government circles, a small business loan might just do the trick.
You’ll need a detailed expense sheet, business plan, and viable financial projection for at least a few years into the future. Once you have all of this ready, just walk into the bank and request a meeting with a loan officer.
Surprisingly, many small-town banks, banks you may never have heard of, are more flexible and willing to give you a loan than the larger brand-name banking institutions. In fact, this is one of the most popular practices available for funding your startup.
Last, but certainly not least…
Always check to see if your loan can be SBA (Small Business Administration) guaranteed. The best way to do this is to use Lender Match.