Funding Your Business
Colin McDougall
Do you know what to do?
Most entrepreneurs are idea rich and cash poor. Like
the old adage says, “it takes money to make money.”
Obtaining
the necessary cash to get your business off the ground can be a
challenge. But let’s take a look at the numbers, first:-
The average startup cost to
become an affiliate marketer is $250. This is a small investment
compared to a $30,000 cash outlay required to start a franchise. Plus,
affiliates don’t have to pay monthly expenses for advertising,
inventory, rent, and payroll. But, coming up with the extra money to
fund the business can be difficult when you have a mortgage, car loan,
and a family to support.
Going the traditional route
with a bank won’t get you very far, considering they don’t like lending
money to a start-up business with no history or assets. Before you let
the bank’s negative view towards start-up businesses, dampen your
entrepreneurial spirit; it’s time to take a personal inventory of your
assets. You might actually have the “wealth” to fund your business.
Here are some possible sources
to consider.
Part time
job/part time funds
Life insurance
policy
401 (k) plan
Family and
friends
Credit cards
These all can be tapped as
potential sources for business capital. In so doing, you become your
own bank. This gives you control over your money. The very control you
wanted in the first place, when you decided to be an entrepreneur.
Take a part time job and use
the income for the new business. If you’re still working at your “real
job”, and starting the new venture ask yourself realistically if you
have the energy to take on a third job. Superman and Wonder Woman
might, but real people can’t work a 60-80 hour work week for very long.
The risk of burn out is high, the chances of hurting your health and
family relationships with undue stress is also high. In the end you
have to ask yourself, are these risks worth it?
If you have a life insurance
policy, you can put it to work, while you’re still around. This might
sound morbid, but if you think about it it’s not. A life insurance
policy provides money to your spouse and family in the event of your
demise. What many people might not realize is that you can borrow
against the cash value of a life insurance policy and pay it back at a
flexible rate, on your terms.
Remember, the 401(k) from your
previous employer, the monthly statements you diligently filed away,
the ones likely collecting dust? This is yet another resource.
The concept of asking family
and friends for money might sound easy considering you have a built-in
level of trust and comfort. While this is likely true, they may not
understand the concept of risk that exists in your new venture. Think
about the dynamics here. If things go well you’re the entrepreneurial
hero, but if things go sour, it will put undue stress on the people
close to you. Many friends and family relationships end up
disintegrating over finances. Ask yourself if this is a risk work
taking before you consider turning to family and friends.
Now take a serious look at
your credit card. The one you used to buy the computer, dinner, a pair
of shoes or a new suit or dress. Credit cards are another great
resource to get it off the ground.
In Entrepreneur’s
July article, “Debt End Ahead”, Jean Burkhart, vice president of Visa
business products, said,” Visa estimates that roughly two-thirds of all
business purchases made with plastic are still put on personal credit
cards.” In this article, Burkhart mentioned that the number of
small-business credit card transactions grew by 29 percent last year
for Visa.
Maintain Control over
Finances
Remember being your own bank
doesn’t mean relinquishing control. As a new business owner, keep a
close watch on the money you’re borrowing. Plan what you are going to
do with the money and when you are going to pay it back. Many
businesses grow fast and the debts grown even faster. That’s not the
place you want to be. A common complaint for businesses owners in this
situation is “I didn't have the systems and processes in place to
maintain control."
If you’re going to be a
successful entrepreneur, you need to be smart about using the money and
have a plan for expenditures, or you'll dig a hole for yourself.
Be sure and set a limit for
yourself so you know when you should get out in case your business
venture is not going well. Don’t borrow more money than you can pay
back in a reasonable time period.
Why
not become a 'freesourcer'? If the conventional sources
of cash are too difficult or expensive then why not use financial
'bushcraft' to get started. Jonathan Yates has just written a book
giving lots of ideas on how to get going without an expensive loan or
giving away much of your stock. His book; Freesourcing is published by
Capstone and is around £10 or $16.
Mr Yate's
book offers excellent advice for individuals just starting out, or even
veteran executives of larger companies
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"Life
is like a dogsled team. If you ain't the lead dog, the scenery never
changes." ~~ Lewis Grizzard
