The growth of your small business is an exciting time. It may mean that you need to hire additional employees, buy or manufacture more inventory, purchase extra equipment, add new locations or refinance old debt.
But figuring out the best way to get funding can be tricky because every business is different and there is no right or wrong answer.
The first question to ask is how much money do I need?
To answer this, it is vital to understand exactly how your business is performing. The best way to do this is to project where your business will be re revenue and profit for 3 months, 6 months, 9 months and 12 months down the road. This forecast will allow you to predict when and how much funding you will need to keep your business growing.
As a way to help determine the amount of money to request, consider:
— What business expenses, debt, interest and overhead you are already carrying
— How much profit you can make by investing more money in the company
— Exactly what you plan to do with the money
The second question to ask is where should I get the funding?
This is not an easy question to answer because every business has different needs and not every financial solution is good for every company. So it’s a good idea to consider your company’s unique vision, mission, financial situation and business plan.
It is also important to understand your financial options. Some of these include self-funding, small business loans, investors and crowd funding.
Self-funding: Also known as bootstrapping, self-funding means investing your own money into the business. The upside of this is the ability to keep complete financial and creative control over your company, which in turn, motivates you to work in a smart and efficient manner.
In addition, you don’t have any equity stakeholders or lenders making demands on you, and you don’t share ownership with any outside investors.
However, the downside is that you are responsible for every penny spent to keep the business running. And if you’re not careful, this could put entrepreneurs into debt.
When it comes to self-funding, some business owners choose to turn to friends and family members for help, use their savings or dip into their retirement accounts.
When doing this, the key is to ensure that you don’t spend more money than you have, don’t put your personal relationships at risk by asking loved ones for money, and don’t delay your ability to retire when you are ready.
Small Business Loans: These loans allow you to retain control of your business, which can be very important to some entrepreneurs. There are several types of loans, including traditional term loans, Small Business Administration loans, business lines of credit, business credit cards, grants, short-term loans and equipment financing.
When talking to banks and credit unions about these loans, be sure to have a strong business plan, expense sheet and profitable projections. Banks and credit unions will offer you different loan terms, so always shop around and compare offers.
Venture Capital Investors: These investors typically invest in a company in exchange for equity in a business, as well as an active role. This means that in exchange for funding, entrepreneurs will need to relinquish some control and ownership of the business.
In order to seek venture capital funding, you must find reputable individual investors (angel investors) or venture capital firms; share your business plan; undergo a due diligence review; negotiate the terms and conditions; and sign on the dotted line.
Crowdfunding: This type of funding raises money from a large number of individuals on websites, such as Kickstarter and Indiegogo. Crowdfunders don’t receive any ownership in the company or a financial return on their money. Rather, they expect “rewards,” such as participating in a new product launch or receiving a gift.
The upside is that entrepreneurs can raise money without giving up control to investors. This type of funding is becoming popular because it is very low risk for business owners. In fact, since Kickstarter was founded in 2009, it has raised more than $4 billion for entrepreneurs.
The bottom line is that no single source of funding is better than another. It depends on many unique factors that only you, as the business owner, can decide. At Inc Authority, we offer numerous funding solutions that could fit your needs. Call us today to learn more 866-545-1867!