12.05.2011

Financing Your Business

One of the largest obstacles facing new businesses is access to funds and other forms of capital. Where do you start looking and how much do you need?

The most common sources of funding for new businesses are:

1.      Friends and Family- Often friends and family can serve as a great resource to support a new business venture. They may be more flexible in terms of how much they have to offer as well as the terms of repayment, if any.

2.      Your Own Assets- Beyond what others can give it is important to contribute your own assets to any business venture you may plan to undertake. It reflects responsibility and seriousness which are important in securing clients and possibly other sources of funding.

3.      Generous Donors- In some circumstances there may be benefactors, with whom you have no previous relationship who are willing to support your venture financially without any repayment or demands for a stake in the company. Though rare, these sources do exist.

4.      Financial Institutions- Often this is the primary resource individuals think of to fund a business. Exercise caution when taking out a business loan. Have a clear picture of the true cost of the loan with respect to interest rates and the terms of repayment (ie, what’s the minimum amount to pay each month and how long do you have?). Also have a clear understanding of the requirements the institution may have when submitting your application. What kind of collateral is required? Many institutions require that you have a business plan when submitting the application. The most important factor to take into account is how you will pay the loan back. Having a clearly defined business plan with costs, revenue and profit targets can help answer this question.

Now that we’ve laid out where you can find funding, it is important to decide how much you require. This question is often more difficult to answer. Many unforeseen costs arise when a business is being created and often it is these types of costs that prove to be insurmountable for young companies. The first step to answering this question is to create a sound business plan. Clearly define what your business is, its objectives and its strategy. Define the market, conduct research into competitors and entry costs to create an overall picture of your venture and what it entails. From here it then becomes easier to identify sources of cost and come up with an overall budget. An important thing to remember however is that businesses are not created to make losses, as you identify costs also identify sources of revenue and set targets.

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