How To Fund Your Startup
Updated: Dec 10, 2019
You’re really keen on the idea of starting your own business; you’ll make more money, you’ll have more time, you will be doing something you love every day, and you don’t have to answer to a boss anymore! But how on earth do people start a business? There are a lot of costs involved before you even make your first dollar and expenses to consider once the business is up and running. At the end of the day, you want to make sure you’re paying yourself a fair wage, not falling behind in bills or finance repayments and the business is making a profit, otherwise, you’re better off staying in your job where you get your secure weekly salary!
Let’s talk about what funding you need to consider before you start, your different options when it comes to financing your startup and important factors to consider before the ball gets rolling!
What is typically involved in a startup business?
Developing the product/service - All businesses have started from nothing and there is a point in the business where you need to develop your service or product, this can sometimes be a costly exercise and a period in which you are not yet making any money. This is the most common funding required for startups.
Operating expenses - Once your business is operational there are other costs involved to keep the doors open. You may have staff you need to pay, products you need to buy, bills to pay and a space to lease. This all requires funds and there are no promises you will be making enough money to cover these expenses in the beginning.
Marketing your products - As much as we would love for you to have a steady stream of well-paying customers as soon as your business opens, there’s little chance of this happening without putting effort into marketing campaigns through an online presence with a website & social media, flyers, or other forms of advertising, this can take a lot of time and money. If marketing & advertising isn’t your thing, you may consider hiring someone for your online presence and marketing needs, which is another expense to consider.
Business expansion - It’s always exciting when your business is in a position to expand and grow. Whether it’s moving to bigger premises, stocking more products or hiring more staff, due to the uncertainty of cash flow in startups, many businesses use external funds to grow their business.
Now you have a clearer idea of the different costs involved in a startup business, which areas are you thinking you will be requiring funds for? This all depends on your business structure; some businesses may only need funds for developing their product/service and then they’re away, other businesses will need funds for this as well as operating expenses and marketing to keep them going until the business is financially supporting itself.
There are some business structures that may need no start-up costs or require a very small amount, for example, a website developer may work after hours part-time building their business. They might need a small amount of money to host websites or use online programs before they are paid by the client, but there are next to no costs involved in starting this type of business. If they decided to quit their day job in order to grow their business, they may need some financing to give them time to find new paying clients, to grow their business with employees, or lease a building for a shop front.
On the flip side, you might have a builder who decides to go out on their own. If they’re building their first house by themselves, who is going to pay for all of the materials and costs in building the house before the homeowner pays them? This is where financing is required, for the builder to get on their feet and start their business.
What are the different options available to finance your startup?
Because your startup will have pretty much no funds, as in you’re not making any profit (yet), you’re going to need to explore some different financing options in order to get your business up and running.
Self funded & operating through cash flow: This would be the most ideal way to finance your startup. If you have the capacity, start doing your own work outside of hours and save that money to finance your business, or continue working hard in your job and save harder in order to have the funds necessary to get your business started. This isn’t possible for all business, but it does work for some. Once your business starts running, your customers then become your source of revenue. Starting your business this way means you are not in debt at all, you own your business 100% outright, and you only have to answer to yourself! It can be a slower process and money can be tight in the beginning, but it will pay off in the long run. Like we said, this doesn’t work for all business startups. Some businesses require more funding than is possible to fund themselves, so let’s talk about some other financing options you have.
Borrowing: When it comes to borrowing money to fund your startup, you have two options for financing; debt or equity. When you finance by debt you are borrowing money, this could be from family, friends or a financial institution. Equity funding involves investors paying you for a share of your company. It’s important to remember that anything that is borrowed, has to be paid back, whether or not your business is making money. As the director of the business you are responsible for making the money and either paying your financial debts or making money for your investors, so you really want to know that your business idea is going to be profitable and successful. If you’re thinking about using your house as security for a business loan, remember that you will still need somewhere to live even if your business isn’t successful.
Apply for Government Grants/Support: You will be surprised at the number of grants available to functioning businesses as well as startups. It’s really important you don’t forget about this opportunity, the government has heaps of initiatives to fund and support your business to grow and succeed. There are certain criteria businesses need to meet in order to be eligible for grants but with so many available, you may find one that fits your business! You can search for the different grants available to small businesses and startups here. Along with funding assistance, the government also have programs that help you build your business skills & knowledge and provide support for business owners, these tools can be very useful for a startup with lots of questions and little knowledge in running a business. Make sure you take advantage of it! See more about their business support and tools here.
Do the Hard Work: Before you go looking for investors or booking an appointment to secure a business loan, do the hard work first. Not only do you need to prove to the financial support that you work hard and your business or idea will be a success, but it’s important to prove to yourself that you’re capable of doing it without the financial support, test it in the market and know that enough people are willing to pay for your service/product in order to make it a successful business. Securing financial support can be extremely difficult, it can take a lot of time and it puts a lot of pressure on you to get started within a timeframe and start making money as soon as possible.
Along with this hard work comes a lot of planning and preparation. If you’re planning to rely on financial support, they’re going to want to see a cash flow forecast, a business plan, examples of your product and more, they want to know they will get their money back!
There’s going to be a lot of hard work and time involved in starting your business before you begin making any money. If you’ve got the patience, determination and can dream big enough, it is certainly achievable. We love seeing our clients running their own successful businesses, knowing they started from nothing, worked hard and over the years have created the business they dreamed of. If you would like to speak to us about how to prepare your startup and plan some financial reports such as a cash flow budget, book an appointment today!