Financing Your Start Up Business

So you want to go into business. You can feel the passion and excitement starting to flow. You have talked to people and they have encouraged you. What now? How do you make it happen? How much money do you need to get started? Where do you get the money? Well in today’s blog we are going to look at all of this.

Before you can even approach anyone to give you finance to start your business venture you will need to do a bit of research. Find a good Accountant, Solicitor and Bookkeeper. Then find yourself a Business Mentor or Coach. Start out with a great team and this will help you becoming the success you want to be.

In my blog – Where to start when starting your own Business – I discuss a lot of the steps that a Start-Up needs to look at and the steps you need to take to start your business. Make sure you have a read of this and get in your mind the initial steps you need to take once you are ready to start.

What you need to know before getting finance

But before you get to that point you need to do a lot of research. Look at the following questions and see if you can answer them. If you can’t, make it your mission to be able to.

  • What type of business do you want to do?
  • How many other businesses like that are in the area you are looking at working from?
  • What do they offer?
  • What will you do differently?
  • What major equipment will you need to buy?
  • How much will that equipment cost?
  • What stock do you need to purchase before opening?
  • How much will that stock cost?
  • What other set up costs will you have?
  • Will you need to employ staff?
  • What are the wages/superannuation costs to employ those staff?
  • Do you need to have premises?
  • If so do you need to purchase or lease the premises?
  • How much will that cost?
  • What are the running costs of the premises?
  • What will it cost to fit out the premises?
  • Will you need a vehicle?
  • Will that be leased or purchased?
  • How much does that cost?
  • Does your vehicle need to be fitted out?
  • How much will it cost to fit out your vehicle?
  • Will you need a website?
  • How much will the website cost to get up and running?
  • How will you market your business?
  • What costs are involved in marketing?
  • What costs are involved in having an Accountant? Bookkeeper? Solicitor? Mentor?
  • Will you need ‘extra’ money to keep you running until you are turning a profit?

Another good blog of mine to read is – How Much Does it Cost You to Just Open Your Doors Each Day? – This will help you answer some of the questions above.

Where to look for finance

Once you have answered all these questions and have a got a great understanding of your new business venture (if you haven’t been too disheartened) it’s time to look at where to get funding from.

Using your own money

Do you have any savings you can use? I would suggest not to use all of your savings, its always good to have some personal savings put aside that you don’t touch.

Can you work while setting your business up? Use your money from a current job to get everything set up and then once its set up, open the doors to your business.

Do you have an investment property you could sell? Or even use the equity of that investment property to set up your business.

Government Funding

Are you setting up a business in an area that the government is giving out grants and assistance programs in? Go to www.business.gov.au/grants-and-assistance/grant-finder and search to see if there are any grants and assistance programs relevant to your business.

Crowd Funding

This is where you use the power of the internet to find a crowd of like minded people, with small amounts of money each, to invest in your business. There are sites like Kickstarter and Indiegogo that provide a platform for this. Crowd funding has exploded over the past few years and is definitely worth your looking at.

Product Presales

This is where you sell your products before they are launched. It can be a highly effective way to raise the money needed for financing your business. You may have a prototype of a physical product that you can market and makes sales from with a delivery date into the future. Or you may have a course that you can presell to start in three months time and then use the presales money to get the course up and running.

Debt Financing

Debt financing is borrowing money from a bank; creating a debt and having to pay it back, usually with interest. If you are going to do this, make sure you use the right option for your needs. Short term options for day-to-day working capital and longer term options for buying of assets.

Different forms of debt financing are:

  • Business Loans – for starting out
  • Business Credit Cards or Bank Guarantees – for improving cash flow or getting extra cash for the short term
  • Business Line of Credit or Short Term Loan – for growing your business over the long term
  • Business Loan or Car and Equipment Leasing – for purchasing equipment and vehicles

Some advantages for borrowing money are that the interest payments are generally tax deductable and you, the business owner retains full ownership of the business and its profits.

But there are some disadvantages as well, like the fact that you do have to pay interest on the loans and this can add quite a bit of money to the cost of things. You also have to repay the amount of the loan and the interest. And sometimes you will need to offer some form of security for the loan.

Equity Financing

Equity financing is when an investor buys a share of your business. It may take time to find an equity partner, but its important to get someone whose outlook and aspirations are similar to yours.

Some options for equity partners are:

  • Family & Friends – this is usually were most people start and sometimes it’s the easy place to start. But be mindful that you will need to keep your loved ones up to date with how your business is really going, for better or worse and if for some reason your business doesn’t work, then your loved one will lose their money and be worse off.
  • Business Partner – by taking on a business partner you are signing over a per cent of your business. You are no longer 100% in control. So you better make sure you can work harmoniously with that person. You will also need a partnership agreement, which sets out how disputes will be settled and what happens if one partner wants to leave the business.
  • Business Angel – are wealthy individuals looking for fast-growing businesses to invest in. Usually they like to become that person’s mentor or adviser as well. They usually look for businesses with exceptional growth prospects, so make sure you can demonstrate this.
  • Venture Capital – someone who is a venture capitalist is a professional investor who invests in promising businesses and helps them grow. They make money by selling their share in your business, either on the share market or to someone else. They look at exiting your businesses in three to five years with a return of 35% per annum or more.
  • Private Equity – these are investors who like to invest in large businesses. They are often involved in management buyouts using borrowed funds.

The advantages of Equity Financing are that the investor shares your risk so if your business doesn’t work out, there’s no need to pay them back. And also there are not interest payments, but you may need to pay the investor a share of the profits, which may turn out to be more than interest would have.

The disadvantages are that you share the ownership of your business so if its successful, you share the success and profits. Also you risk losing control of your business as the investor my take part in decision-making. Also you will have to share in the profits.

Once you have worked your way through all the different finance options and you feel you are ready to start your business venture, have a read of my blog – So you want to start a business, what now? – it will help you move forward with starting your business.

I have created a print out for you to download so that you have all the questions you need to answer before you go for finance all in the one spot. Click on the button to download this.

Click Here to get your What you need to know before getting finance questions


Please note: I reserve the right to delete comments that are offensive or off-topic.

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