Blushing Beaus Boutique, Greencastle, Putnam County
1. Estimate Your Funding Needs
Start at the beginning and ask these questions. How much money do you need and what will this money be used for? Understanding your expenses will help you launch your business successfully. Calculating startup costs will not only assist you with estimating profits, but will also help you secure loans, attract investors and potentially save money with tax deductions.
Identify your business expenses
The type of business you have will greatly impact the many expenses you will have. The Small Business Administration (SBA) has determined that most businesses fall into one of three categories. These categories include, brick-and-mortar businesses, online businesses and service providers.
There are some common startup costs that all businesses will have. Below are some examples, but don’t forget to include any additional expenses that are unique to your business.
- Office space
- Equipment and supplies
- Licenses and permits
- Lawyer and accountant
- Employee salaries
- Advertising and marketing
- Market research
- Printed marketing materials
- Making a website
Estimate how much each expense will cost
After you have created a list of business expenses, you will need to estimate how much each expense will cost. Some expenses will be a flat cost, others you will have to estimate. If you have to estimate a cost, be sure to be realistic with your estimation. To assist you with calculating expenses, utilize an online startup cost calculator.
Once you have a cost associated with each line item on your expense list, it is a good idea to organize your expenses into a manageable organized expense list. The SBA recommends organizing your expenses into one-time expenses and monthly expenses.
One-time expenses are those expenses that are needed to initially kick off the business. Examples include, buying equipment and paying for permits. Monthly expenses are typically things like salaries, rent and utility bills. Adding up both types of expenses will provide you with a good picture of how much capital you will need to begin your small business.
2. Determine the Best Source of Funding
Before you begin looking for funding, it is important to identify the best source for your small business. The Financing Options Quick Pick Cart from bizfilings.com is a great resource to narrow down your best source of funding based on your current needs and business stage.
3. The Truth About Free Government Grants
I need a grant for my business. What is available?
Most grants are for nonprofit organizations, not small businesses. With that information in mind, be very careful of advertisements promoting “free money for your business”. These ads can be very misleading, often suggesting that you can receive a list of many grant sources for a fee of a few hundred dollars. This is not the case.
Frequently this is a list of microloan programs, which you must repay, or grants for nonprofit agencies.
The federal government does offer a few very competitive and targeted grants to companies developing various targeted technologies (often high technology).
This article by SCORE helps you determine if a government grant offer is a scam or legitimate.
4. Friends and Family Funding
If your business is the show, you, your family and your friends are the stars of this stage. Think personal savings, a home equity loan, borrowing against your insurance policy as a start. The following articles give some timely tips on using personal resources to fund your business.
5. Types of Loans Available
Commercial bank loans don’t require entrepreneurs to turn over equity or company control. In general, banks prefer to make loans of more than $10,000. Banks like to see the following.
- Good credit
- A solid business plan
- Ability to repay the loan
A line of credit is an arrangement in which a bank extends a specified amount of credit to a specified borrower for a specified time period. A line of credit is best suited to help cover expenses that tend to fluctuate throughout the course of a year.
Home equity loans are a cost-effective alternative to other types of loans because they offer the best available interest rates.
Equipment lease financing gives you access to many types of equipment, computers, copiers, fax machines, cars and trucks, all without tying up your cash or credit lines. Although it doesn’t bring in cash, leasing reduces the amount of cash you would have to raise to begin your business.
Cash advances from credit cards are an easy and quick way to gain access to cash. But as a long-term financing method, they can be expensive. Credit card interest rates typically run much more than you would likely pay on a bank loan.
Factoring allows a company to “sell” its accounts receivables to an outside company at a discounted rate. This allows the company to receive funds immediately to fund operations and ease cash flow. Keep in mind, factoring is done by private companies.
6. SBA Loans
If you have determined that an SBA loan is the right kind of financing for your business, you will need to package your financial information in a way that makes it easy for a banker to make a favorable decision. At the most basic level, you will need to provide the following.
- Basic information about your business
- Basic information about the loan you are requesting
- Financial information about your business
Contact the West Central Indiana Small Business Development Center
ISU Scott College of Business, 30 N. 7th St.
Terre Haute, IN 47809
7. Angel and VC Investment Groups
Angel investors allow entrepreneurs to soar. By providing seed money to business startups in exchange for convertible debt or ownership equity, investors give entrepreneurs that edge they need in the early days of business. Some angel investors come together to form angel groups or angel networks to share research and pool investment dollars.
In contrast, Venture capitalists (VCs) usually make their capital investments later in the business cycle. They exchange their investment and their expertise for a significant portion of the company’s ownership and significant control over company decisions.
Before you approach an angel investor, angel network, or VC firm, ask yourself and your partners the following questions.
- Am I willing to give up some amount of ownership and control of my company?
- Can I demonstrate that my company is likely to realize significant revenues and earnings in the next three to seven years?
- Can I demonstrate that my company will produce a significant return for investors?
- Am I willing to take the advice from investors and accept board of director decisions I may not always agree with?
- Do I have an exit plan for the company that may mean I’m not involved in three to seven years?
You’ll need to follow those answers with a solid business plan and an executive summary that include the following.
- Financial overview for at least three years out
- Sales and marketing plans
- Three-to-five year goals and your action steps to get there
- Exit strategy
Visit the Resource Navigator to find a provider who can help you make these connections.
8. Technology Grants
Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants to fund research and development efforts of a high-risk nature that may have excellent commercial potential for small businesses.
Small U.S. businesses are eligible to participate in the SBIR/STTR program if they are for-profit and have 500 or fewer employees. Nonprofit organizations are not eligible.