A Practical Guide on How to Finance Your Next Business

Bank loans? Investors? Personal funds? You actually have multiple options to get funding for your business. But always, it is a question for business owners like you, especially for startups, to know how to finance your business.

Bank loans? Investors? Personal funds? You actually have multiple options to get funding for your business. But always, it is a question for business owners like you, especially for startups, to know how to finance your business.

The Small Business Administration (SBA) confirms this by saying “it costs money to start a business.” [1] Business structure and operations could be affected by how you fund your business.

Even if you already have established a business before, you might still need some help on your next business venture. After all, there’s no one-size-fits-all financial solution since every business has its own needs, and the financial future of your business largely depends on your financial situation and your vision.

Before you embark on looking for investors or getting bank loans, there are 2 things you need to determine first. 

  • What will be your common business expenses?
  • How much funding do you need?

It is crucial to decide on what you “need”, what you “want”, and what can “wait”. 

Let me show you first the common business expenses that you need to consider before you secure funding. 

Prepare for these Common Business Expenses

    1. Payroll – Consider the number of employees you have now, and how many you need in the next six months before you start making profit, how much you will pay them (and yourself), and what other extras you are willing to offer. 
    2. Licensing, permits and taxes – Doing business costs money, and you need to make sure that you follow legal protocols to make it legitimate. Save yourself from legal trouble, and make sure to allot funds for licensing, permits and taxes.
    3. Equipment – Whatever kind of business you’re planning to set up, there is a list of equipment that you will need to obtain. Do you need computers, phones, machinery, and other equipment? Are you considering leasing or renting equipment?
    4. Insurance – Life and non-life insurance are both critical. Insure your business so it’s ready if a disaster strikes. But how about your employees? Are you going to offer health insurance to them too?
    5. Advertising and website – With businesses going digital nowadays, your business needs to have a strong online presence too. Let people know that you exist through advertising and a good website. Depending on the nature of your business, you might also need to buy social media ads, rent billboards, put ads in local magazines or newspapers, or optimise your site for best search engine results. 
    6. Inventory and upcoming orders – One of the most crucial parts in preparing to start your business is to ensure you have enough raw products to keep your business operational. If you don’t, should you be investing more in it?
    7. Miscellaneous – Be ready for extra expenses too. Will work-related travel be required for you or your employees? Will you need to hire consultants in your fields? Will you need a lawyer on retainer to handle legal matters for your business? 

Think through all these common business expenses so you’ve planned it out well before you secure funding. Identifying what expenses you’ll need and how much will give you a clear idea of exactly how much funding will you need to keep your business operational.

Calculate that, and proceed to the next step.

If you need help from an expert, don’t hesitate to contact our DDDC Business Advisory Team. We have experts who can coach you on the necessary information you’ll need to know about how to finance your next business.

Decide the Type of Funding for Small Business You Need

Ludwig and Wingo (2022) [2] say that “there is no “right” way to fund your business, whether you’re looking for startup funding or to maintain or grow your existing business”. 

In fact, the best way to fund your business is the one that works for you, whether you’re looking for startup capital or to maintain or grow your existing company. The best type of funding may vary depending on your business’ stage, and sometimes it’s a combination of different types (Ludwig & Wingo, 2022).

Here are common ways to finance your business:

  • Personal loan – Take advantage of a high personal credit score. You could get a personal loan for your business. Be careful though, since your personal credit can be seriously affected if your business fails.
  • Micro-loan – As the name suggests, this refers to small loans provided by individuals or organisations, which typically is less than $50,000. This could be a good option for you if you don’t intend to loan a huge amount of money.
  • Traditional loan – For new businesses, traditional lenders look at your personal credit and decide whether they could give you a loan based on your credit history. If you have a low credit score, it might not be easy for you to get a traditional loan. But if your business is already more established (i.e. two or more years in operation), plus you have a good credit score and a stable business revenue, then you could possibly get very good interest rates from a traditional lender.
  • Online loan – If you don’t have a high credit score or not much time in your business, turning to popular online lenders could be your next option. The process is usually quick and less complicated, but they often have higher interest rates. 

If you need expert opinions in deciding which loan is more suitable for your current financial needs, you could reach out to us here at DDDC Business Advisory. Our finance and business coaches are ready to guide you through this tedious process. We understand that putting up a business is no joke, and you need to take every step with careful planning and assessment. 

If getting a loan is out of the question, you still have other good options to consider. Continue checking the list below.

  • Investors – Research potential investors and venture capitalists thoroughly and create a business agreement with them. If you’re a part of your local entrepreneurial community, then it could be a great place to find potential investors for your business and ideas.
  • Crowdfunding – This requires pitching your ideas online to get upfront pledges to support the business or product. You may visit sites like VentureCrowd or PropertyShares.  To succeed, you need to learn to market yourself and be knowledgeable about web content.
  • Family and friends – If you’re lucky enough to have family or friends who could help you fund your business, you could consider this option. But take note that this is risky, and may complicate relationships so make sure to treat it professionally – draft contracts or agreements, and make sure they earn interest or equity in the company.
 

With many options available to you, it could get overwhelming to decide which one is the most suitable. Take note, each option has its pros and cons. You need to weigh things to ensure you fund your business in a strategic manner. 

Sources:

[1] US Small Business Administration (n.d.). Fund Your Business. Retrieved from https://www.sba.gov/business-guide/plan-your-business/fund-your-business

[2] Ludwig, S. & Wingo, L. (2022). A Practical Guide to Funding Your Small Business with Business Loans and Beyond. Retrieved from https://www.uschamber.com/co/run/business-financing/small-business-funding-guide

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