Financing a business can be challenging work in itself. That’s true whether you’re starting a business from scratch or expanding an existing one. And with current inflationary trends going up, the 64 percent of small and medium-sized businesses actively looking for financing mechanisms will only increase.
But with careful planning and a bit of creativity, it is possible to get the money you need to keep your business growing. Here are seven tips to help you finance your business.
1. Make a Realistic Budget
The first step in any financial planning is to make a budget. Determine how much money you need to operate your business and how much you can realistically afford to spend. Then, look for ways to reduce your costs without compromising the quality of your product or service.
For example, planning to open a new restaurant? Take a look at your menu. See if there are any items that can be scaled back, or if you can establish terms with more favorable vendors.
This helps from a financing perspective. That’s because you’re more likely to get the cash and terms you desire if you can clearly show lenders that you’ve done your homework.
2. Know Your Options
There are many different ways to finance a business. Before you decide on a particular method, research all of your options and compare the costs and benefits of each. Some common methods of financing include investment capital, government grants, and loans.
Investment Capital
Investment capital can come from a variety of sources, including individuals, businesses, or even government agencies. Usually, investment capital does not have to be repaid with interest.
Investors often have experience in running businesses and can offer valuable advice and support. They may also be willing to provide contacts or resources that can help your business grow.
However, investors typically want a say in how your business is run, so you may have to compromise on your independence, resulting in business fees you’re unwilling to pay. Additionally, if the company goes bankrupt or the investor decides to pull out, you may lose all the money you’ve put in.
Government Grants
A government grant offers another way to finance a business, but there are a few things to keep in mind. First, grants are typically given out by government agencies, so the process of applying can be bureaucratic and time-consuming.
Additionally, the requirements for eligibility can be stringent, and competition for grants is often fierce.
The advantage: government grants are usually free money. In other words, you don’t have to worry about repaying it with interest, provided you check all their boxes.
Loans
Loans do have to be paid back with interest, but they have many advantages that make them preferred among individuals starting a business or financing a growth initiative.
For example, you keep 100 percent ownership of your business. This ensures that you maintain control in the direction of the business without having to dole out equity stakes.
At the same time, you receive the infusion of cash that you need to undertake projects designed to grow your business. All you have to do is keep payments current to avoid incurring any late fees.
Last but not least, repaying your loan over time builds a firm foundation for your credit. This makes it easier to access funds in the future as well.
3. Find Creative Solutions
Don’t be afraid to think outside the box when it comes to running a business. There are many creative ways to raise money, such as crowdfunding, issuing equity shares, or partnering with another company.
Also, you don’t have to go “all in” with any one plan. You can try multiple modes for raising cash, including loans to preserve as much equity as you can. This could prove invaluable as time progresses since too many “cooks in the kitchen” can dilute ownership and negatively affect decision-making.
4. Develop a Solid Business Plan
A well-crafted business plan is essential for convincing investors or lenders to give you money. Your plan should include detailed information about your business finances (i.e., business model, operating expenses, sales projections, and marketing strategy).
Projections should be realistic and based on actual market data. Lenders and investors know when they’re looking through rose-colored glasses, so bring your A-game to those interactions.
5. Build Alliances With Other Businesses
One way to reduce the cost of financing your business is by partnering with other companies. You can pool resources and share expenses, which can help you save money while still getting the necessary funding for your business.
Let’s say in becoming an entrepreneur you’re trying to expand your business to a new market that you haven’t served before. You could partner with an already established company to tap into its existing customer base.
If you’re not a direct competitor and the company can see how your product or service aligns with its customers, then it just might work. As a result, you can both reap benefits through shared advertising and marketing.
6. Keep All Eggs in Separate Baskets
One rule of investing is to spread the risk around by investing in different types of assets, such as stocks, bonds, and real estate. This will protect you if one market crashes while still allowing you to grow your wealth over time.
Similarly, you should consider using multiple funding mechanisms when financing startup ideas or the growth of your existing business. If there are aspects of your business that qualify for free money, go for it.
If an investor can bring real value to the table and help you over a hump, give them a try. Just make sure that you know what you might be giving up with each potential non-lending cash source.
7. Be Prepared for Bumps in the Road
Financing a business is always a risk, but you can minimize that risk by being prepared for unexpected events. Have a contingency fund set aside so that you can cover unexpected costs if they arise.
This will give you peace of mind and help keep your business on track financially.
Financing a Business Is Not Easy But Is Worth It
These are just a few tips to help you when financing a business. By taking the time to plan ahead and being creative with your approach, you can get the money you need to keep your company growing strong for years to come!
And if you need a loan to help fuel that growth, Kingcash is here to help. We can get you started in five minutes with a few taps of the phone. Contact us today with any questions!
