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Ideas for entrepreneurs: How to finance your business?

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Mmz Año 7 - Edición 66
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Every entrepreneur knows that a business needs money to start and move forward throughout time. But to get the money, the entrepreneurs will need to finance it. You must know several ways to obtain the main goal for the first investment that will allow the business to grow and expand. So today, we are going to show different recommendations to finance your business and other important aspects that can affect the structure and operations, keep reading!

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Recommendations to finance your business

First of all, the business area, the market plan, the needs, the goals, and plans for the future will determine how the finance must be done, but also your financial situation can influence this. With a good starting point, the business will sail smoothly, but sometimes you will need external help. All these are different recommendations to finance your business. Let’s check out all of them.

Own Funds

This is also known as bootstrapping. Here you will check your financial state and resources to support the business. Even here, you can take advantage of your 401k account, any savings account that is under your name, or any investment. But also here it’s good to ask family and friends for capital for this new adventure. 

The best part of self-financing your business is that you can have all the rights and control over it, which of course, means that you bear the major risks, so you have to be careful of everything. Here the best move is to double-check all the financial plans with the administrator and your financial advisor. After all, if you spend more of what you can afford, you can lose a lot of money, moreover, if you are using your retirement account.

Venture Capital From Investors

Investors are a great way to finance any business. They normally work with venture capital investments. They are pretty simple: an investor offers the necessary capital to start or upgrade a company with certain conditions such as exchange of ownership, stakes in the business, or a seat on the board of directors. Here you must give a part of the control over the company, and any decision must be approved first by the actionists and investors. 

After that explanation, we must say that there is no safe way to get an investor and their venture capital, but after defining certain aspects of the business plan, the process will follow these basic steps:

  • Find an investor: you can look for individual investors, normally known as angel investors, or you can check venture firms. Either way, you must do a background check of their historial to be sure of their honesty and success. 
  • Share the business plan: the investor will look and study the plan to see if it meets their criteria because they tend to focus on one or a couple of aspects, from the business area to even the region.
  • Undergo a Purchase Audit Review (Due Diligence): here, the investor will review and examine the business, and with this, we talk about every single aspect from the team to the operations, without forgetting documents and statements.
  • Set the Terms: honesty is also important in business. After passing the points above, it is good to set the terms and demands for the new business partnership. The investors will do the same, which translates into a particular and risky meeting, but normally agreement is not that hard to reach. 
  • Investment: after the final agreements and meetings, it’s all set to start the investment. This can be done in several parts while the business is reaching new goals. Remember that the investor or firm is now an active part of the company, and you will deal with them closely. After all, they are only making sure that the money is well invested. 

Crowdfunding

This method takes everybody by surprise because it is pretty simple and you don’t need to give a lot. Crowdfunding is where people provide funds for a company without asking for a return of that money or a seat on the board of directors. Because when we say people, we are talking about tons of people. They can be 100 to 1million. They only ask for a “gift” normally is the product or service that you will offer in the business, some of them will ask to appear in the credits, especially if the product is about the entertainment world like a documentary or a music album. The only thing that you must take care of is to fully understand the crowdfunding platform that you are using to get that funds to finance your business. 

Small Business Loan

If you don’t want to take risks with crowdfunding and investors, but you don’t have financial resources, the best course of action is to ask for a small business loan. This can be done by contacting banks and credit unions, but before requesting a meeting, you must have a business plan, an expense sheet, and financial projections for at least the first five years of the business. This is beneficial for both parties, you can check how much you need, and the bank or credit union can see how strong the business plan is. 

Small Business Administration Investment Programs

The Small Business Administration (SBA) is the federal agency in charge of supporting small businesses in the United States of America. Here you can find several programs dedicated to different sectors, but all of them with the same premise finance America’s small businesses.

  • Small Business Investment Trusts (SBIC): this program is for small business investment companies, which are funds owned privately, managed, and regulated by the SBA. They use their capital with the SBA’s addition to investing in small businesses that reunite several requisites. 
  • Small Business Innovation Research Program (SBIR): The SBA tries to encourage small businesses and companies to participate in federal research and development for commercialization purposes. 
  • Small Business Technology Transfer Program (STTR): this program offers different funding opportunities to work with nonprofit research institutions in the early and middle stages of launch, all this for federal innovation.

Knowing how to finance your business is highly important. That way, you can have the best procedures and starting point, and always remember several ways to obtain this. If you are an entrepreneur, find the best finance program for you and your company. Keep in touch with the magazine to find out more about the entrepreneurship world.

How to finance a business.

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