You’ve got a great idea for your business, but there are many details to consider before jumping into entrepreneurship. The most important detail of all is, of course, financing your startup business.
Estimate startup costs
Every small business has different overhead costs, and you want to be practical in estimating your startup needs. The U.S. Small Business Administration identified these as some of the costs that apply to most startups:
- Seed money. The money you’ll need to stay in business for the first few months. Keep in mind your personal finances as well — you’ll need money to buy groceries, pay your mortgage, purchase healthcare, save for emergencies and so on.
- One-time costs. Examples of these expenses can range from basic startup costs — such as the sign on your building and the fees for incorporating your business — to more involved details, such as computers, equipment and inventory.
- Ongoing costs. Regular costs that include your utilities, insurance, rent and so on. Essential costs. Anything necessary for the business. The costs can be split into two categories: fixed (costs that will be the same every month) and variable (costs that will change depending on demand).
Start sourcing your finances
Now that you have an idea of what your startup will cost, it’s time to find sources for those funds. If bank loans and venture capitalists aren’t for you, here are some other options:
- You. If you can afford it, this may be an ideal option because you don't have to rely on others, and you can still maintain control over your business. That said, being on your own means the risk is all yours, and personal finances can overlap into business health.
- Friends and family. Your friends and relatives may be willing to provide financial support. They may be more lenient and flexible when it comes to getting a return on their investment, and sometimes these arrangements can lead to great things. Consider this: Mark Zuckerberg founded Facebook on a $1,000 investment from an acquaintance. Be careful who you ask, however. It’s common for resentful feelings, misunderstandings and other problems to develop when you rely on friends for funding. The key to making it work is open communication and a repayment plan that you stick to.
Think outside the box
Crowdfunding is a unique way for startup businesses to get funding. This growing trend leverages the Internet to obtain a small investment from a large group of investors. The investors agree to buy your product before you’ve developed it. With an appealing consumer project, this can be a great way to generate funds. You’ll also have to consider promotional expenses. Look into sites like Kickstarter, Indiegogo and SeedInvest to see if this model aligns with your business plan.
With a little bit of creativity — and the right amount of startup funds — you can get your small business started on the right foot. Keeping all of your possible expenses in mind will help you start with success and grow from there.
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