If you want to give your new business a good, solid, financial base, then the right start-up finance is vital. You need to ensure you have enough funding to cover your needs in the short term so you can make the most of all your opportunities. It can be hard to finance your start-up when you don’t really know how much money you need so understanding the types of finance available is a must.
Draw up a budget
Using your business plan draw up a budget, this should consider:
- forecasts of expenditure and sales
- capital costs
It should also be realistic because sales may not get as high as you might want as quickly as you would hope, costs may be higher, and you may not be able to pay yourself for a while.
What startup finance do you need and when?
For the first couple of years expect to spend more money than you will earn so you may need to consider finance that will cover this. If you are a seasonable business, you will see peaks and troughs in your cash flow so you will need to consider this as well.
Allow for unexpected problems
Contingency funding is vital to cover those” worst-case” scenarios, this might be the delay of a product launch, costs rising or even losing an important customer. Consider how accurate your forecasts might be and err on the side of caution.
Startup finance is best arranged in advance and at the same time
When you need extra funds, it is often too late to organise them. Be upfront with your bank and ask for all the funds you need at the beginning. When you ask for more later it may give your bank cause for concern.
Business finance types
There are a number of different types of finance available so make sure that you understand the differences and importance of each one. These include:
- Investment finance – the capital you need for development and start-up costs
- Short-term borrowings – an overdraft may often work for this, but be wary of exceeding your overdraft limit
- Longer-term borrowing – loans and other types of borrowing are usually used to finance things like vehicles and equipment
- Financial support – there are grants and schemes available for a range of small businesses and start-ups, so it is worth looking into these
- Mortgage – you may also consider taking out a mortgage on your own property, this will usually be at a better rate than a business loan but carries the risk of losing your property if you cannot keep up with the payments
- Investors – If you have a proven record of accomplishment in the business arena then you may be able to attract investors for your start-up
With any type of startup finance that you want to consider, it is important to look at the risks that are involved and also the costs. Different finance options will attract different rates of interest and repayment. Therefore, you need to consider all of these details in order to ensure that what you decide on works best for you.