You've developed a business concept and now you need the financing to make your dream into reality. Before you drain your personal savings to try to start your company, take time to research the financing process. With a bit of planning and research, you will help ensure that you have financing set-up to help you not only start your business but also keep it open for the loan haul.
Here are some steps you can follow to help ensure you finance your start-up the right way the first time around.
- Put your plan on paper - Before you can start your fundraising, you need to sharpen your business idea. Take the time to write a formal business plan, including the following elements: mission statement, business summary, short and long term goals, target market, competitive analysis, financial analysis, marketing strategy, and even the management team.Investors and financers will want to see these details, so it is good to have it prepared in advance.
- Review for risks and legal issues - While developing your business plan, you will have the opportunity to evaluate your proposed business for risks and potential legal issues. Now is the time to mitigate these risks so they do not make you lose out on potential funding.
- Calculate the amount you need - This step certainly is not an easy task. Where many new entrepreneurs make a mistake is only calculating their initial funding needs, believing their new business will be able to fund future milestones. However, donít assume that you will maintain a high enough cash flow to finance future advancements.
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Explore your options - Once youíve smoothed out your business plan and calculated your expected costs, youíre ready to explore your financing options. Major sources of potential financing include the following: personal savings, your friends and family, angel investors, loans and government grants.Many of these options (personal savings, friends and family, loans) are self-explanatory. Here is some additional information about the other potential funding sources:
- Credit Cards: According to the National Small Business Association, at least one third of small businesses rely on credit cards. Small business credit cards has consistently ranked in the top 3 financing options.
- Angel Investors: these are affluent individuals who have acquired business experience over the years. They typically contribute a large financial investment and provide a knowledge investment as well, acting as an advisor for the newly founded company. Entrepreneurs like you can find Angel Investors through extensive networking.
- Government Grants: The U.S. government has a wide-array of programs available for small businesses. These include the Small Business Administration (SBA), Small Business Investment Companies (SBIC), Small Business Innovative Research (SBIR), and Small Business Technology Transfer (STTR). By visiting the websites for these government-sponsored programs, you can determine which programs align with your future business.
- Share your success - Once youíve approached your potential funding sources, completed the necessary due-diligence and secured your financing, make sure you develop a positive relationship with your financers. As mentioned previously, you should assume that you will need additional financing in the future to ensure your business can flourish. And the best case scenario is that you can utilize your existing financing sources instead of having to court new investors.One great way to maintain a positive relationship is to share your milestones with your investors. Even small milestones will demonstrate the advancement of your company to your investors. This will show your businessís risk is decreasing and they are getting closer to sharing in the profitability of your company.
