Do you have a great business idea but not enough funds to bring it to life? If so, then the solution is logical: you need to secure adequate financing.
Money is essential for most businesses to start and grow. When you lack enough capital, you’ll have a difficult time allowing your business to unlock its highest potential.
With that said, building wealth to fund your business is easier said than done. Many company founders have a difficult time gathering enough money to operate their ventures smoothly.
This doesn’t only mean cash flow. It also means the very first infusion of money into your business—capital, in other words.
If you find yourself struggling to secure adequate financing, we hear you. Financing can indeed be tough. But it’s a crucial step to getting your start-up to flourish and fully realize itself.
Need some tips? Read on for six financing tips to help you grow your business.
Let’s begin!
1. Create a Business Plan
Every successful business starts with a well-crafted business plan. A business plan provides the framework in which your business can grow and operate.
This plan lays out crucial business details, such as a mission and vision statement, financial projections, and growth strategies, among many other factors. It’ll also include how you plan to finance the endeavor.
This guide around business lending and finance can help you out in that process.
Business owners can financially benefit from having a business plan since it outlines business goals and other relevant descriptors through a thorough, step-by-step process.
Without a business plan, businesses will essentially be running around like headless chickens—which would hardly work out in your favor.
More tangibly, a business plan is also important if you want to approach investors and fund opportunities for capital.
These investors want to know the facts about your business proposal and determine for themselves whether it’s worth investing their money in or if it still needs a little bit more work.
With a sound business plan, you can have investors by your side and score on financing opportunities that can let you start your business on the right foot.
2. Build Your Credit Score
New business owners should seek to grow their credit score as soon as possible. A good credit score is essential for you to secure desirable loan plans and credit card allowances.
Conversely, a bad credit score does the opposite; it decreases your chances of getting adequate funding from reputable financial institutions like banks and credit unions. This is because a low score indicates difficulty in paying debt, which no entity would want to risk.
Building your credit score is a multifaceted process. It involves making timely repayments, restraining yourself from maxing out credit cards, and ensuring that your credit reports are filed with no errors.
Once you show that you abide by good practices, over time, you can grow your credit score and gain access to better loan deals. This can come in the form of increased lump-sum loan payments, better interest rates, access to unsecured loan types, or a combination of these three factors.
3. Evaluate Your Financing Options
There are multiple ways you can finance your new business venture. The first thing is to determine what exactly needs financing. Do you need a whole lot of capital to acquire merchandise and inventory? Or do you need capital for equipment and machinery? Or both?
Once you get to the bottom of your financial requirements, then you can further narrow down your financing options. Some options, like leasing a piece of machinery or vehicle, are viable options for the short term if you don’t have the means to spend so much on an asset just yet.
That said, many financing types can be viable options for budding businesses. Here are some of them that you can consider:
- Line of credit: Typically used to cover operational expenses, this type of financing is similar to credit cards but usually provides a greater source of funds.
- Venture capital: This type of funding is an arrangement between angel investors and startups wherein the investor puts in some of their funds to the startup in exchange for equity.
- Bank loans: These loans are lump-sum cash amounts provided by banks for the benefit of the business. These loans are usually secured personal loans, an arrangement wherein collateral is used to protect the lender in case the borrower defaults.
- Unsecured loans: These loans have no collateral and are usually given to borrowers with a good credit score. They also usually have higher interest rates to make up for the increased lender risk.
- Crowdfunding: This type of funding is one wherein the business collects small amounts of money from a large amount of people, usually through the Internet.
There are additional ways of financing startups, like invoice factoring and getting SBA loans, but the ones listed above are some of the most popular ways to do it.
4. Take Advantage of Government Grants
In many countries, like Australia and the United States, you can get access to government grants that enable you to gain some funding, enabling you to launch your startup sooner than intended.
These grants can differ based on your industry, eligibility, and a few other factors. You’ll also have to apply for them, and there’s often a lot of competition for them.
But if you’re eligible, you can get as much as five digits in capital to kickstart your business venture. And the best part is that you don’t have to pay it back either!
Be sure to do your research and see whether your state government has its own grant program for businesses.
5. Build a Strong Accounting System
It’s critical to build a strong accounting system and hire a credible accounting team to perform your record tracking. These people are the ones who have inside information on your finances, from your cash flow statement to your balance sheets.
Once your business starts to pick up steam, you’ll have to focus on more top-level tasks and may not have enough time to deal with daily transactions.
Having a working accounting system ensures that your finances are all properly tracked and audited, which is essential for maintaining sustainable finances.
From there, you can gloss over these financial statements and see what works and what needs adjustments. A competent tax specialist can also help you lower how much you’re paying in taxes legally, which can lead to more cash flow for daily operations and expansion.
6. Negotiate with Suppliers
Another financing tip is to negotiate with your suppliers. Be strategic in your negotiations and refrain from just asking for a discount. You want to show them that the partnership is mutually beneficial.
One way you can negotiate is by showing that you’re willing to engage in a long-term partnership and are willing to buy in bulk. This guarantee can incentivise suppliers, but it doesn’t always work.
If money constraints are tight, you may want to explore other suppliers who are willing to supply at better rates. But by negotiating and constantly looking for better deals, you can lower the cost of operations and merchandising, which in turn can lead to improved cash flow for your business.
