Archive for the ‘Financing Your Entrepreneurial Dream’ Category

“If you would know the value of money, go and try to borrow some.” – Benjamin Franklin

While spoken in the 1700s, Ben Franklin’s words still ring true today. Financing your business is not something to be taken lightly. There are a number of financing options, including: 1) Personal investment; 2) Family and friends plan; 3) Banks; 4) Government programs (SBA); 5) Credit cards; 6) Angel investors; and 7) Venture capital.

Let’s take a look at each of these options in a bit more detail.

1)      Personal investment

• Personal savings
• Retirement savings, although it’s not advisable to finance from your 401k or IRA
• Personal investments such as your stock portfolio
• Home equity loan; while some entrepreneurs do this, it’s not advisable (you want to reduce your risk, not increase it)

2)      Family and friends plan

• Includes people that believe in your vision
• It’s essential to share your business plan; it shows your vision and that you’ve done your homework
• If the business fails, owing money to friends and relatives can be a painful experience

3)      Banks

• While it can be challenging for startup businesses to gain a conventional business loan, it certainly is possible
• Again, your business plan is a must when working to receive a bank loan
• You may be able to work with the Small Business Administration (SBA) for a guaranteed loan

4)      Government programs through (SBA)

• 7(a) Guaranty: Loans for startups; can be used for working capital, equipment purchases, furniture and real estate;  length of loan 10 to 25 years
• 7(m) Microloan: Similar to 7(a) but small loan sizes (up to $35,000), shorter terms and no real estate purchases
• 504 Certified Development: Long term, fixed rate loans for real estate, machinery, modernization and or expansion

5)      Credit cards

• Many small business ventures are started in part with the use of credit card debt…but be careful
• Excessive credit card debt is one of the most common problems small businesses can face and can be a major factor that leads to small business failure

6)      Angel investors

• Typically individuals who’ve been successful themselves and are looking to reinvest; they can be hard to locate and even harder to convince

7)      Venture capital

• While similar to angel investors, this is a group of individuals looking to invest in (typically) larger deals
• Very competitive: lots of small businesses and startups seek money from venture capitalists

Use the comments area to tell us which type of financing is right for you. Not sure? Have questions? Our team of small business experts is here to help.

If you missed last week, check out Part 3 of 7: Exploring Financing Options and don’t forget to tune in next Wednesday for Part 5 of 7: Five Myths about Financing Startups That Hurt Beginning Entrepreneurs.

Financing Your Entrepreneurial Dream
Practical Ideas, Practical Discussion – Part 3 of 7: Exploring Financing Options

You’ve done your homework and know how much money you need to get your small business up and running. Like many entrepreneurs, you probably need to explore financing options. Here are some key things to consider:

• Are your needs short term or long term? Determine how quickly can you pay the loan back or provide a return on an investment.
• Is the money for operating expenses or for capital expenditures that will become assets (for example, equipment or real estate)?
• Do you need all of the money now or smaller pieces over several months?
• Are you willing to assume all of the risk if your company doesn’t succeed, or do you want someone to share the risk?

Once you’ve answered those questions, you’ll need to decide which type of business financing best fits your needs:

• Debt financing: You borrow money and agree to pay it back over time with interest.
• Equity financing: You sell partial ownership of your company in exchange for cash.

Taking the time to thoroughly research which type of financing is right for you is extremely important. Your business depends on it! In your opinion, what are the top pros and cons of debt versus equity financing? Please post your responses in the comments. Have questions on what’s right for you? Post those in the comments, too, or contact our team of small business experts.

If you missed last week, check out Part 2 of 7: How  Much Money Do I Need? and don’t forget to tune in next Wednesday for Part 4 of 7: The Money Hunt: Where Can I Get Funding?

Practical Ideas, Practical Discussion – Part 2 of 7: How Much Money Do I Need?

Many entrepreneurs underestimate how much money they need to successfully start their new businesses. Not getting off on the right foot financially can put an end to a business before it even really begins. Finding that “magic” number involves a four-step process: 1) Calculate startup expenses; 2) Define assets; 3) Determine ongoing monthly expenses; and 4) Calculate monthly sales

1. Calculate Startup Expenses

First let’s take a look at startup costs. You’ll need to budget for these types of expenses:

• Creating your legal structure (check out the Legal & Tax section on the Tools page)
• Accountant
• Rent / Decorating / Remodeling
• Licenses and permits; insurance
• Stationery and logos; marketing and sales material; signage; website
• Phone, Internet and utilities

(Note: check out our Small Business Connect B2B Network for resources.)

2. Define Assets
Now, what about defining those items essential to running your business? We’re talking about things such as real estate, furniture and fixtures, equipment and machinery, trucks and autos, inventory and office supplies. Make a list and estimate the total cost for purchasing only those things that are essential to running a successful business.

3. Determine Ongoing Monthly Expenses
Your ongoing monthly expenses will include obvious items such as rent, utilities and payroll. But the list doesn’t stop there. Don’t forget to budget for:

• Owner’s draw
• Insurance and taxes
• Transportation and shipping
• Legal and accounting
• Advertising and marketing
• Inventory and supplies
• Debt payments
• Working capital

Now, when you have a total for your monthly expenses, do this:

• Multiply the total by six: this is what you will need to run your business for six months
• Add the “by six” total to your startup expenses and the total of the assets you need to purchase
• You now know how much money you need to open the doors and keep them open for six months; remember, it is ideal to have a minimum of six months of working capital in the bank before you start

4. Calculate Monthly Sales
With this information, you can now calculate your monthly sales. In other words, by understanding your startup and monthly expenses, you can determine what you need for a break-even sales total. Depending on your business, break that number down to the smallest amount you can – think in terms of daily sales and daily expenses.

Knowing your numbers is powerful: it provides confidence and it demonstrates a real understanding of what’s necessary to succeed. If you’ve got questions, please post them in the comments. Otherwise, contact us through Small Business Connect so we can help.  If you missed last week, check out Part 1 of 7: The Essentials to Starting a Small Business and don’t forget to tune in next Wednesday for Part 3 of 7: Exploring Financing Options.

Practical Ideas, Practical Discussion – Part 1 of 7: The Essentials to Starting a Small Business

You have a business dream, and you want to go for it. Good for you! Owning your own business can be a tremendously rewarding experience. It can also be a tremendously draining experience – both emotionally and financially – if you’re not well prepared.

When you think about the essentials needed to get your new business off the ground, a solid business plan should be one of the first things that comes to mind. The key to building a great business plan is research, research, research…and then more research. Start by answering these questions:

• Is your new business filling a must-needed niche?
• What makes your services or products unique?
• Have similar businesses flourished in your location? Why or why not?

Take a look at our free small business plan template for help in pulling all your research together. Don’t forget to do a bit of research on yourself. That’s right: on you. Is entrepreneurship truly for you? Our self-assessment survey can be very insightful.

An extremely important component of your business plan can be put simply as this: know your numbers. Cash flow, debt, solvency, liquidity, operational efficiency, profitability and more – you’ve got to know them all. The financial calculators on the Tools page can help, as can a host of other free small business tools .

While preparing a solid business plan can feel overwhelming at times, remembering two simple things can make the task much more manageable:

• Do your homework.
• Bring in help.

There’s a team of small business experts available to help website, along with other tools and resources. Let us know in the comments: what’s your biggest question about becoming an entrepreneur or starting a new business?