Four Ways to Finance Your New Business Startup
The beginning of the year is the time during the year when people recommit themselves to starting their own business. While there are a lot of things to consider when starting a new business, one of the most important is the finances because businesses need money to operate at some point in time you will need to get paid to cover your living costs. Here are four sources for financing your startup business.
Understanding Your New Business Finances
Before anything else, it’s important that you understand what the finances of your business will look like. If you haven’t run a business before then you might be surprised by all of the expenses you might have to pay when starting and running a business.
Typically, there are two main types of expenses: cost of goods and operating expenses. Cost of goods is the money that you must pay in order to buy products that you will resell or consume to make other products. Operating expenses can include rent and utilities, payroll and health benefits, insurance, office equipment and professional services.
Before you start your business you should get as clear a picture as you can of the expenses that you’re going to have to pay.
Self-Financing Your Business
If it’s possible, self-financing is the easiest option. If you can afford to live without your current income and use your savings or other sources of income (a spouse’s income or a part-time job, for example) then you don’t need to worry about going through any complicated application processes to borrow money or carry the burden of a business loan.
But while this is the easiest option, it doesn’t mean that you should be any less diligent with understanding your business expenses. There’s nothing worse than assuming you can live off your savings long enough to get your business up and running only to find out otherwise later.
Asking Family & Friends
Family and friends might be willing to loan you the money you need to get started on very friendly terms (like no interest or flexible repayment). While they’ll probably want details about your new business, they’re also likely to trust you and want to support you any way they can.
Likewise, just because they’ll likely be more than happy to help it doesn’t mean you shouldn’t do a thorough job of understanding what types of expenses you’ll have to pay in starting and running your new business.
The tricky part with borrowing money from family and friends is what happens if you aren’t successful in your business, and the cold hard truth of the matter is that many new businesses don’t survive the first few years. By carefully planning your new business before you start – and that includes understanding the finances of your new business – you’ll be much more likely to succeed and won’t have to have that awkward conversation with family and friends about how you lost their money.
Government Loans & Grants
Small businesses are the engine that drives Canada’s economy and new businesses are what drive economic growth. Municipal, provincial and federal governments offer grants (monies that don’t need to be repayed) and loans (monies that do need to be repayed) to help entrepreneurs start new businesses. Furthermore, governments also offer workshops, seminars and mentorship programs to give entrepreneurs the skills they might not otherwise have.
Government grants and loans come in all different shapes and sizes and there is usually some sort of application process and compliance requirements. The government wants to be sure they’re investing Canadian tax payers money wisely and want to make sure small business owners are using it wisely.
Banks & Other Lenders
If you require a significant amount of capital to start your business then you might need to find a bank or other lending institution. This is by far the most difficult route to go, but if you don’t have the money yourself, can’t loan it from family or friends and government grants and loans won’t cover it then you might have no other option.
Typically, the lending process at a bank or other lender is the most stringent: they want to make sure they get their money back in the future and with a healthy return on top. Depending on the amount of the loan, a bank may require that someone (the borrower or someone else) personally guarantee the loan – if you can’t repay the loan then the bank can liquidate the guarantors pledged assets to cover repayment.
How a Bookkeeper Can Help
A professional and qualified bookkeeper can help you research and understand the types of business expenses that you can expect to pay when you start your new business. Having worked with other types of businesses, a bookkeeper will be able to identify expenses that you might not think of and how much different expenses are likely to be.
If you do need to get a loan from a lender like a bank, a bookkeeper can help. They can make sure that you create a solid financial plan, help you complete the application properly, and make sure that you stay on track for repaying the loan.
There are a number of different ways you can finance a new business venture. Self-financing is the easiest way, but you can also look to family and friends, governments and banks. No matter where your startup investment is coming from it’s important to understand exactly what your business finances will look like, and a professional bookkeeper can help with this.
Simply Bookkeeping1 provides professional bookkeeping services for freelancers, solopreneurs and owners of unincorporated and incorporated businesses. We customize our services based on your needs – we only see some of our clients a few hours a month but others we see on a more regular basis. Our services are reasonably priced and we tightly track the amount of time we spend working for you so you only pay for the services you get.
To learn more about us, please visit our website at www.simplybookkeeping1.com or contact Michele Hyde by phone at (647) 668 – 9363 or by email at firstname.lastname@example.org.
Have Your Say
Are you thinking about starting a new business and trying to understand what your finances might look like? If so, we’d love to hear from you! Tell us things that you’ve found that have surprised you. Also, please share this article using the social media share buttons – other entrepreneurs might benefit from what you’ve learned!