Business Financing 101: First Steps to Starting Your Own Business
Many people aspire to start their own business, but most don't know where to begin. Maybe you have a great idea for an online store, a dog walking business, or even strike out on your own as a freelance graphic designer. You may have the vision, but you'll need to figure out the financial details first and foremost. When it comes to business financing, here's what solopreneurs need to get their company off the ground.
1. Write a Business Plan
Your business plan serves as the roadmap to building your company and, ultimately, setting you up for success. This formal statement outlines how you'll run the business and usually includes the following:
- Executive summary
- Analysis of the market
- Company description
- Organization and management
- Services or goods offered
- Marketing strategy
- Funding requirements
- Financial projections
2. Calculate Your Startup Costs
Tallying up your anticipated expenses will help you estimate profits, figure out what your break-even point is, secure funding, and save money on tax deductions.
Depending on what kind of business you'd like to start—brick and mortar, online, or service-based—you'll have different types of expenses. For instance, operating costs for a brick-and-mortar business may include the office space, building permits, and utilities. If you're opening an online business, your costs may involve remote website support or virtual assistants.
Do the research to get an estimate of all your costs. To get a clear idea of your expenses, divide them into monthly expenses, one-off expenses, and seasonal expenses. For example, web hosting, insurance, and utilities are monthly expenses, buying office furniture or hiring an SEO consultant are one-time costs, while seasonal expenses could include hiring temp workers to get you through a busy period.
3. Explore Sources of Funding
There are several different ways you can secure funding for your small business:
- Personal savings, retirement, and investing accounts. The money you can afford to pull from your personal assets can help jump-start your business.
- Small business loans. You can obtain a small business loan from a bank or an online lender. The Small Business Association (SBA) also offers loans.
- Business lines of credit. This is usually extended by the bank you have a business account with.
- Small business grants. While you need to meet certain criteria and fulfill specific requirements, grants are essentially free money for your venture.
- Crowdfunding. There are plenty of options to raise capital by crowdfunding your business. Popular platforms include Kickstarter, IndieGoGo, GoFundMe, Quirky, and Fundable.
- Peer-to-peer lending. Also known as P2P lending, peer-to-peer lending is a way for small business owners to borrow money from an individual investor or bunch of investors who act as the lender. Transactions are conducted over an online platform.
With business financing, there's certainly no one way to go about it. To figure out which type of funding is best for your new business, carefully assess your business needs. If you're looking for outside help, shop around to see what kind of financing you qualify for, then review the rates, terms, and any fees associated.
4. Get a Business Credit Card
While you may not necessarily need a business credit card, you'll want to designate a single credit card solely for business-related purchases.
Having to painstakingly comb through your transactions to separate your business from personal spending is unnecessarily time-consuming. With a credit card for your business, you'll have a far easier time tracking expenses, creating reports, and obtaining up-to-date info for your taxes.
Spend time researching interest rates, terms, and various fees for different cards, and check your credit score to see which cards you qualify for.
5. Open a Business Bank Account
For your business to thrive, you'll want to stay on top of your day-to-day startup finances. By having a bank account for your business, you'll establish business credit, usually gain access to a line of credit should you need it, and your customers will be able to make payments directly to your business (rather than to you).
When looking for a business bank account, check to see what the minimum balance requirements are and if there are any associated fees.
Starting a business is no small endeavor. But by understanding the business finances involved, you'll be well on your way to turning your dream into a reality.