No matter how good an entrepreneur you have the potential to be, financing your start-up will be the first test you have to pass. It will make you or break you. Because this is such a crucial step in the process, you should do plenty of research online and consult with an expert to get the best advice. For this article, I have summed up the best advice from a collection of business literature and will present it as 20 bullet items, 10 for do and 10 for don’t-do. here’s the least you should be aware of:
Here are the top ten “DO’s” and “DON’T’s” of financing your first small business:
1. Go to somebody else with your business idea. A friend, relative, potential partner, somebody you know who runs their own business, or even a qualified professional such as an investor. This will weed out those riskier propositions that you couldn’t see for yourself.
2. Go to the Small Business Alliance as a first-stop to get advice on further steps. They, too, will be able to offer sound advice.
3. Live frugally and save up every spare penny for your financing nest egg. If you can’t scrape a few thousand dollars together to start with, how can you possibly expect to make it in the competitive business world?
4. Figure out how much you will be earning, and trim your financing needs accordingly.
5. Use your accountant or attorney as a referral when you go to lenders.
6. Have a business plan ready, in writing, when you go to lenders.
7. Maintain a current business report summary, with expenses, earnings, liabilities, assets, etc. Keep it with you at all times. You have to keep fewer facts in your head that way.
8. Consider alternative forms of financing, such as taking on a partner, getting investors interested, getting a small business grant if you are a woman or minority, or buying into a franchise, before considering a loan.
9. If you need a loan for one year, ask for two years to be on the safe side.
10. Keep your lenders informed of changes, developments, and setbacks. Remember that they have a motivation to help you succeed so that you can pay them back; so your success is their success.
1. Go into it with the expectation that the world owes you financing. People with an idea are a dime a dozen; it’s only the good ideas and the strong, hard workers that get financed.
2. Insist that you and you only get to make decisions. Once you have an investor, a lender, or a partner, they’re in the same boat with you and their fate is tied to yours. Anybody who stubbornly rejects all advice but their own will fail in business, guaranteed.
3. Fall for a flaky loan with poorly-defined terms. Also steer clear of get-rich-quick schemes and shady alliances. One of the biggest pitfalls is the business owner who was taken advantage of when they were young and naive.
4. Avoid a creditor or investor when you have bad news. the sooner you let somebody know you’re in trouble, the faster they can help you out of it.
5. Exaggerate the earnings potential for your business. Of course, optimists and entrepreneurs go hand in hand, so you’ll have a natural tendency to be excited about your new venture. And investors and lenders can smell that on you like booze and they will avoid you.
6. Borrow or fund less than you need. If you had to get $20,000 together, don’t try to make it with $15,000 end end up losing it. Here are two places to learn more on small loans such as payday loans and larger considerations or bigger business loans.
7. “Bet the Farm”; don’t risk your home or other large assets by taking out a home equity, unless you’re iron-clad sure that you will be able to pay it back. What’s worse than losing your business is losing your home at the same time.
8. Make promises or sign guarantees you can’t keep. When you’re starting a business, the only thing you have to bank on is your good word; lose that and you’ll have no place to start again.
9. Spend large sums of money wining and dining potential investors. It’s tempting when starting a business to live richer than you really are; in fact, you should live poorer. After all debts are repaid and you’re rolling in money from your fourth year of success, that will be time to live high and have fun.
10. Forget that you have an option to sell out. Instead of stubbornly pushing through in the face of crushing defeat, consider selling the business. You might still be able to cut your losses, maybe even profit, and somebody else might be better at running your business.