Start Up Finance – Everything You Need To Know
Start up finance often known as startup capital refers to the initial financial investment in the development of a new company or product. This startup capital may be provided by venture capitalists, angel investors or even traditional banks. Startup finance refers to capital that is used to pay for all expenses that would be incurred in the course of creating a new business such as initial hires, office space, permits, licenses, product research and market testing, product manufacturing to mention a few.
Sources Of Startup Finance
As a new business owner intending to launch your company, you might be unable to fully cater for the expenses that would come along with starting up a business. As a result, in this situation, you would require external sources of these funds.
Here are a few ways you can obtain the required startup finance to run your business as well as their advantages and disadvantages:
- Personal Investment
Starting a new business is fundamentally risky as it might not go according to plan and end up crashing. As a result, it is much more advisable that you start with your savings if you do have enough money saved up. By using your own funds, you are protected from external influence and would not be indebted to anyone should the business end up failing.
At the beginning this gives you a fixed scale which you can focus on and allows you handle your business project as you see it without external interjection. In the long run, you can also create plans for external funding, but the most important thing is to start and get results.
- Bank Loans Or Credit Card
If you do not have money saved or your savings is not enough to cater for financing your business, then you can either choose to finance your business with a credit card or a bank loan. It is relatively easy and fast to get approval or your business credit card and minimum payments are generally low, meaning you can afford to gradually pay back until your business takes off. However, failure to make one payment can damage your loan, and while you make minimum payments, the interest rates are high and can be spread for years.
Taking out bank loans for a startup can be difficult to an extent; you need a good credit rating, assets as well as a history of tax payments. With all of this, your loan might even still be declined. As a result, bank loans are often times even harder to receive for small businesses. They take longer to process and require more documentation. When they are finally granted the interest charged on these bank loans are high.
Crowdfunding is also another way of raising startup finance. It is an excellent way to test the market by pre-selling products or services. If your startup is a technical company, or has a creative innovative approach, then crowdfunding is a perfect way to raise the funds you need to finance your business.
Investors in crowdfunding are not shareholders as such you maintain full control over your business, however, the funds raised using crowdfunding can be limiting.
- Angel Investors
An angel investor is a private investor with high income who invests their funds in developing company in exchange for a share of that company. These investors invest in startups at the early stages of development and are willing to take on the high risks associated with newly formed businesses.
These angel investors may act independently or on behalf of certain organizations who have created a fund or operate in a syndicate. Angel financing takes even less time when compared to other traditional ventures.
- Government Grants And Subsidies
The government sometimes makes grants and subsidies targeted at financing startup and small scale business owners. These grants provide you with the funding you need to finance your startup business. However the process of getting these grants may be tough and require even more documentation. As such, you must first apply for these grants and have your business proposal which contains key information of the project, work costs as well as long term returns.
Managing Your Startup Finance
Once the funds have been raised, the next course of action is to effectively manage and utilize these funds in the running of your business operations to ensure your business’ sustainability. Here are a few tips on how to effectively manage your startup finance:
- Cash Flow Management
It is important that you stay on top of your business cash flow as mismanagement might lead to the eventual collapse of your business.
- Track All Spending
All business expenses should be tracked by properly keeping record of them, this way you know just how much is being spent to cover for expenses. As such, you know how to reduce your expenses if the need arises.
- Monitor And Measure Performance
As a new business owner, you need to set goals and targets for your business and also monitor just how well your business has achieved these set goals or is working towards it. That way, you are guaranteed that your start up finance is being put to proper use.
- Maintain Financial Stability
You should understand that as a startup business owner maintaining financial stability is key to your business success. Hence, you should separate your business funds from your personal funds, taking care to leave your personal need out of it. Your startup finance is meant to keep your business running and it should be used to do just that.
As an entrepreneur looking to start your own business, you need startup finance that would provide you with the required capital you need to get your business running. Whether you decide to run your business using your own investment or seek external financial aid, they are both startup finance options. Once these funds have been acquired, it is also important that you have an understanding of how to properly manage them to ensure your business’ sustenance.