Every business needs capital. It's true that many businesses can be started for less than $500. Capital does not mean that you need to have millions in cash or banks and investors lining up to give you money. To be successful, you need only to have the necessary capital for your specific endeavor. This may be $20 to print flyers, or it could mean $20 million to buy a manufacturing facility. Every business has its own unique capital needs. Whether the amount is large or small, you must have SUFFICIENT capital to do it right.
Before launching your business, or committing to a major expansion, consider carefully your budget and sources of funds. How much will you need to get started? How much will you need to cover monthly losses until sales exceed your costs of goods, wages and overhead? How much will you need for contingency costs? Every new business has surprise costs and delays that aren't considered, so plan for some uncertainty.
Existing businesses should continually evaluate both cash flow and expected capital needs. Many businesses run into timing issues when customers don't pay quickly, but bills keep arriving on time. Anticipation and preparation for these challenges will help your business run more smoothly.
Most fledgling entrepreneurs consider raising capital from only four sources:
- Personal funds - savings or home equity
- Outside investors - family, friends or angel/venture capital investors
- Business loans - SBA guarantee or secured bank loans
- Credit - credit cards or business purchases on credit
While these are all viable and effective methods of financing your business, there are infinitely more ways to get it done. After preparing your budget or sales forecasts, sit down with a sheet of blank paper and brainstorm on possible funding sources. Here are some ideas to consider:
- Seller financing - sellers will often accept payments over time when selling businesses
- Commission terms - brokers may agree to defer commissions to get a deal done
- Supplier financing - suppliers will sometimes wait 90 days for payment on inventory
- Receivables financing - some lenders will help in a cash crunch if you are waiting on payment
- Leasing instead of buying - lease equipment to reduce your capital needs
- Sale leaseback - sell your building or equipment and sign a lease to free up cash now
- Deferred rent - your landlord may be willing to wait on rent if approached with fair terms
- Sublease - rent out a portion of your space if not being used, seek advance payment if possible
- Off hours - seek revenue sources on evenings and weekends
- Strategic partner - find a business that needs you and is willing to invest in your growth
- Peer-to-peer loans - web lenders can aggregate many mini loans for a defined purpose
- Liquidation - sell unused inventory and non-essential equipment
- Vending - instead of buying a jukebox, a vendor can provide it and will even lend you money
- Sponsors - get a sponsor to underwrite a portion of your marketing budget
- Advertising - sell ad space on your building, Web site or company newsletter
- Advance payment - commit to providing a long-term service at a discount for payment up front
Every business is unique.It is up to you to brainstorm and find capital sources that arise out of your circumstances.
Access to capital is one of the most significant barriers to creating or expanding a business. Don't wait until your business is short on cash. Instead, make efforts to nurture resources in advance.If you are able to create just a few good capital sources, your ability to pursue your business goals will be boundless.