We’ll AnswerWhy is it important for me to figure out the costs of starting my business?What are some typical ways that new businesses get funding?How can I get the funding I need for my new business? For lots of people, starting a business can be exciting. You’ll get to do something that motivates you while hopefully making people happy. But there’s a lot that goes into starting a business. A good business plan, management skills, and the proper funding each play an important part in getting the job done. With so many different elements needed for your business to thrive, it can be tough to know which is the most important.What can make the biggest difference between staying in business and closing up shop?Let’s find out For a new business, money can be central to success. So it’s good to know how much you might need and where to find it. Calculating the costs of setting up, running, and growing your business makes it easier to estimate profits, see how much money you need to break even, secure loans, attract investors, and maybe even get some tax breaks. And if you know the best way to get the funding you need, you can make more accurate plans for your business. That can help you avoid trouble like getting into needless debt or signing contracts that are wrong for your business. A key to estimating costs is being organized. So break out a spreadsheet or some budgeting software and get ready to create a clear picture of your finances. Start by listing some items most businesses need. In addition to office space, there are supplies like desks and pens, utilities like electricity and heating, communications equipment, and any necessary licenses, permits, or insurance. You’ll also want to account for paying employees, outside consultants like lawyers or accountants, and yourself. Plus, there’s marketing and advertising, including market research, buying ad space, and building a website. Once you’ve accounted for standard expenses, add in items that are unique to your business. These could be the ingredients a juice bar puts in its smoothies or a sewing machine a haberdasher uses to make fancy hats. When your list is complete, estimate each item’s value. Things like permits often have well-defined prices, while the cost of salaries can vary. Look online and ask around to see what other companies typically pay to help you estimate. Now that you have a big list of expenses and some costs that go along with them, it’s time for the fun part: math. First, note which expenses will be one-time costs. These are typically the initial costs needed to start or grow your business, whether it’s buying major equipment, designing a logo, or paying for a permit that lets you open your store. The rest of your costs are repeating expenses. These generally help you sustain your business and include things like salaries, rent, and utility bills. Calculate how much each of these will cost you over 1 month, 1 year, and 5 years. Add up your total expenses to see how much money you’ll need and when you’ll need it. Make separate calculations for monthly costs, annual expenses, and a 5-year budget.TIPGive yourself some extra space in case your actual costs are higher than expected. You don’t want your plans to be ruined just because the price spiked on an item you needed at the last minute. With an idea of how much funding you’ll need, it’s time to figure out how to get it. One way is to fund your project yourself (AKA self-funding or bootstrapping). Self-funding can be a good option if you’re able to afford it. You can have complete control over the business without having to give any outside investors partial ownership or owing payments to any lenders. The downside of having all that control is that you’re assuming all of the risk. So be careful not to spend more than you can afford, particularly if you choose to tap into a retirement account. If you’re not able to fund your business yourself, you still have options, each with their own plusses and minuses. One method is venture capital. With venture capital, investors usually offer funding in exchange for ownership shares (AKA equity) and active roles in a company. It’s like if your uncle gives you money for an oven and then gets 1 out of every 10 cakes you bake. Since the investors are getting partial ownership in return for their money, venture capital doesn’t involve debt – it’s not a loan you have to repay. However, investors are taking a big risk, which means they’ll want a substantial reward. To get the biggest potential payday, venture capitalists usually reserve their money for companies that can grow quickly and easily. So, if you’re looking for venture capital, you need to show that your business has a big, bright future. You also need to be willing to give up some control of your company. Most venture capitalists want to sit on the board of directors of companies they invest in. That way, they can help make decisions that minimize their risk. Say you want to keep control over your company and feel like your idea would excite lots of people. You can turn to a platform that allows you to crowdfund. Crowdfunding usually involves collecting lots of small sums from potential customers, your social network, friends, and family. These supporters aren’t technically investors, since there’s no financial return. Instead, they generally get a gift in exchange for their contribution. You can offer a product you plan to sell, a meeting with your company’s leaders, or a chance for donors to have their names recognized publicly. Since supporters aren’t owed money, crowdfunding can present a pretty safe option for businesses. Even if your project fails in the long run, you generally don’t need to repay anyone. But you’re not in business to fail. So make sure you have a sound marketing strategy that can help you spread the word about your project and convince people to fund it. LISTEN UPSince every crowdfunding platform is different, make sure to read any fine print carefully and understand your full financial and legal obligations. If you don’t want to give investors partial ownership or create a crowdfunding campaign, you can consider getting a loan.Banks, for example, offer small business loans to qualified people. You’ll get to keep complete ownership of your business, but you’ll be taking on debt. So it’s important that you’re ready to make regular payments. Getting a small business loan can also be tough if you don’t have an existing business that’s proven it can generate revenue. If you can show a bank that you’ve had success, they might be more confident that you’ll be able to pay them back. Microloans, meanwhile, are small loans available from a variety of sources, including online loan platforms, community organizations, and nonprofit groups. They can be great if you’re just starting your business and don’t have good cash flow or a really strong credit history. Microlenders are typically more willing to work with applicants who haven’t established themselves yet. Still, these loans sometimes come with a high interest rate, so make sure you can pay back what you’re taking out. As with any way to fund your business, there are risks. But hopefully you can see the rewards. DO THIS NOWMany people can’t self-finance their businesses, so it’s important to know if another way to get funding works for your business. Let’s look at your situation and see which method might be right for you.Let’s do it
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