OK. You’ve written your business plan and completed your marketing plan. You’ve memorized your elevator pitch and registered your business under the appropriate business structure. Your product or service has been perfected and is really for the market. Have you forgotten anything?
Oh, that’s right: Money. Moolah. Scratch. Quid. Loonies. Bucks. Big Ones. Rhinos. Bread. Benjamins. C-Notes. Rands. Greenbacks. Clams. Peti. Euros. Hundi-sticks. (Did you know that Kashoo will convert your transactions to over 100 global currencies?) Whatever you call it, your business needs capital. Under-capitalization is one of the main reasons for business failure. To help your business reach the “break-even point”—when your sales revenue equals your expenses, you need to know exactly how much you need to start your business and to keep it going.
Whatever you call it, your business needs capital. Under-capitalization is one of the main reasons for business failure. To help your business reach the “break-even point”—when your sales revenue equals your expenses, you need to know exactly how much you need to start your business and to keep it going.
Five questions to ask yourself:
- How much money do I need to start my business?
- How much personal funds/assets do I have to finance the start-up phase?
- Do I have family, friends, or others who are willing to invest in my business?
- Do I have strong personal credit that will allow me to get lines of credit?
- Do I have long-standing relationships with any financial institutions?
Depending on the size and type of your business, a mix of any of the following funding sources could be the capitalization assistance appropriate for you:
- Personal Savings: This is the most common source of start-up funding for many small businesses, including freelancers and solo practitioners. (75% of Canadian small businesses start with self-funding from personal sources).
- Debt Financing:
- Government-backed loans. The U.S. and Canada have many loan programs specifically for entrepreneurs: check the websites of the U.S. Small Business Association and the Canada Business Network.
- Commercial Loans. At 44%, loans from commercial financial institutions are the 2nd-most common type of small business financing.
- Equity Investment: “Equity” means “ownership”, and when people invest in your business, it is usually for a percentage of ownership. Take care to keep at least 51% ownership in your company, or you will lose control of your own business.
In order to keep your business finances up-to-date and your accountant happy, use your small business accounting application daily—it’s easy, really!