Getting start-up funding is never simple. It requires familiarizing yourself with many different options, and narrowing them down to the best option(s) that make sense for your business. Moreover, it requires capital planning. I know what you’re thinking, another “advisor” writing about creating a BUSINESS PLAN. Rest assured, the following article outlines 6 tangible steps to get start-up capital:
Step 1: Get Your Paperwork in Order
It is going to be difficult to get capital if your business is not legally formed. If you have questions on the proper legal formation, see our blog post on the topic (click here). Also, apply for an Employer Identification Number for tax and other business related purposes.
Step 2: Go See Your Banker
Don’t have a banker? I highly recommend working with a community bank, which is likely to be much more small business friendly compared to a national bank. A bank will likely not give you a loan today, but may lend to your business in the future. Develop a rapport with a banker, look into their business credit cards and open a business checking account.
Step 3: Analyze the Numbers
Whether you are barely starting a business or generating modest revenue, measure the performance of your business and set performance goals. Be sure to identify your business cash needs over the course of the next 12 months. Last but not least, make sure you establish reporting systems to track performance (e.g., QuickBooks, Xero).
Step 4: Type Cast Your Business
Depending on the growth profile of your business, your capital options may significantly be different. At the expense of overgeneralizing, I’ve narrowed 4 types of businesses and your business should likely fall into one bucket (only one):
1. Young Small Business, like a one unit restaurant, retailer or beauty salon
2. Fast Growing Start-up, like Uber 5 years ago
3. Product Launch, like the product-oriented businesses featured on Shark Tank (e.g., PipCorn)
4. Solopreneur, loan wolf seeking the dream either in accounting, bookkeeping, legal advisory or something else amazing
Step 5: Assess Your Funding Options
Once you have determined the type of business you are in, take a look at Figure A below to identify the capital options best suited for your business. This list is comprehensive, but by narrowing your options based on the type of business you are operating, I just saved you 100 hours of work. Thank me later.
Figure A: Funding Options by Business Profile
Figure B: Start-up Funding Options
Step 6: Plan for the Future
Make sure you prep to get a bank loan – it’s cheaper A LOT CHEAPER. In next week’s blog, we are going to prep you to get access to a bank loan, while you are starting your business. The future success of your business may rely on its ability to access cheap sources of capital. Be prepared, if not, rest assured smart competitors will be.