Last week I asked if you were afraid to start your own business? Today I wanted to look at the money needed to start your own business.
I was watching the Dragon’s Den program on CBC last night because one of the show participants came into one of my classes last week to speak with us. If you haven’t caught the program yet, I highly recommend that you watch it at least once. You’ll get to see entrepreneurs working their butts off to obtain funding for their small business. Some get their money (eventually). Others get their hearts broken. Some go on just for the publicity of being on television.
I’ve been really interested with small business funding for the past few years. As a result I’ve spoken with a few entrepreneurs about this topic. I’m really not enamored with the whole process of attempting to acquire venture capital. This is why I came up with a list of funding options for your small business to consider before you go to an Angel Investor or Venture Capitalist (from best to worst):
If you’re convinced that your product or service will generate a decent income then you can start off by pumping your own money into the business. This way you won’t have to rely on anyone else for financial support and you can have full autonomy over your business. Of course you must be fairly risk averse because you must be willing to accept the fact that you could lose the majority of your savings if your business never works out.
It makes no sense to hold off if you feel that you have a revolutionary idea and you want the first mover to market advantage. However, realistically speaking, with such high failure rates with most small businesses you might be better off by waiting to get started. You could find out that your business idea was only a fad or you could use the time to run more calculations. Either way there’s nothing wrong with holding off sometimes. Donal Trump mentioned in one of his books (and this stuck with me for 5 years) that sometimes the best investment is the one that you don’t make.
If you know someone in a similar industry or a person that shares the same vision as you, then you could form a partnership. This way you can split the work, along with the funding. You could also encounter a situation where one individual is more proficient at running the business end of things, while the other person can be a financial backer. This could also be a tricky situation. You must clearly outline the responsibilities and expecations of both individuals involved in case something happens.
A family loan is near the bottom for a reason. This really depends on your relationship with the family member. You must be willing to accept the fact that money WILL change this relationship. It could change it for the better if you pay the loan back and throw in some interest. Money could also dramatically hurt this relationship if you take a long time to return the money or if you can’t pay the money back. You must ask yourself and the person: what will happen if I can’t pay the money back? You need a contingency plan or an exit strategy for how you would deal in the event if such a situation does occur.
I do NOT support credit card debt in any way. I do want to say that a credit card company will never ask you any questions. An investor always will. A credit card can help you cover small and unexpected expenses that come along with starting your new business. For example, you could use your credit card to cover a server cost or something minor like that. It’s completely unacceptable to use a credit card to pay for dinners or any other frivolous expense that you may want to accrue for your business. A great alternative method to get credit is to take advantage of invoice factoring for start ups so that you get an advance of funds you know you will make in the future.
Which source of funding have you used or considered for your side business?
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