Starting a business is exciting, exhilarating, and expensive. If you’re preparing to take the leap from employed to self-employed, you’ll need passion and a sense of urgency about your new venture. Equally as important is a sense of commitment.
While the exciting early days of a new job can be thrilling, the newness eventually wears off, and you suddenly realize that you’re working as hard (or harder) than you have ever done before. Unless you are committed to making your new career work, it will be easy to simply walk away from the struggle. In addition to passion and commitment, would-be entrepreneurs need funding.
It may seem self-explanatory that anyone trying to go into business would need some startup capital. But other than office supplies and business cards, what other items will a new venture need to pay for?
Licenses and registrations—These fees can range up to several hundred dollars, depending on the industry you’re in. At a minimum, you may need to incorporate or need special licensing to operate as a small business.
Professional fees—Many people advise new businesses to establish a relationship with both a lawyer and a CPA who specialize in small-business matters during the early stages of a startup. Not only will they ensure that your business is set up correctly, they can also advise you as your company grows.
Operating expenses—The expense of daily operation can quickly add up. Do you need a high-speed Internet connection? Are you renting an office? What type of marketing plan will you follow? Will you need to establish a website? It is essential that you obtain a detailed and realistic view of the actual costs of running a business.
Supplies—These can include office supplies as well as equipment, such as computers, copiers, any specialized software you may need, and other essentials for running your business.
Once you have an accurate amount of how much cash you’ll need for daily operations, you have several options for financing your new venture. There is no “one-size-fits-all” solution to funding your business. In fact, many businesses use a combination of sources to pay for their founding. The important thing is to find the process that works best for your business and allows you to be successful in the shortest amount of time.
Reduce the amount needed.
By eliminating all “non-essential” items in your budget, you may be able to reduce your financial needs to a more manageable sum. Instead of leasing office space, for example, you could work from home. Look for ways to barter for needed materials as opposed to purchasing. You could also comparison shop for the best prices on supplies and scour classified ads and second-hand shops for used equipment and furniture. Although you won’t be able to eliminate every expense, you might make your venture easier to afford.
Known as “bootstrapping” among entrepreneurs, it involves starting on a limited basis until sales pick up. Starting a business as a bootstrap may mean that you offer limited services or products, or that you focus on a smaller market. By limiting the number of employees (typical bootstraps start with only one employee), you save on payroll costs and can reinvest money back into the business. Once the business starts to make a profit, you can add in other product lines, hire additional personnel, or invest in office space. Bootstrapping allows the business to grow at a manageable rate.
Seek outside funding.
Looking for funding sources has never been easier. According to many financial experts, the explosion of successful fundraising by startups is unprecedented. Not only are more venture capitalists and angel investors available and willing to invest in startups, but the general population can contribute to entrepreneurs through crowdfunding. Many economists are warning of a slowing down in crowdfunding as the newness wears off. However, they still acknowledge that the newest form of fundraising has changed investing forever.
Startup incubators and accelerators have become a resource for entrepreneurs seeking funding as well as support and advice. Another alternative to crowdfunding, angel investors and venture capitalists seek investors among family and friends. This can be risky and should be handled with the same attention to detail that an unknown investor would expect. Many businesses owe their start to the financial support of friends and family.
Many people have great ideas that never get off the ground due to a lack of funding. While there are work-at-home careers that initially require little-to-no funds, the majority of entrepreneurs will need some form of financial support in the beginning. Today’s entrepreneurial marketplace, however, has created an environment where almost anyone can find funds to support their dream if they’re willing to put in the effort.
To be a success, entrepreneurs must plan ahead to ensure that they have the money available to sustain them through the lean startup years. By seeking funding, starting small, and reducing expenses to a minimum, you have a greater chance of establishing a company that will succeed.