This post has been kindly contributed by Sarah Wells of Red Concierge.
The question every budding entrepreneur asks themselves once reality has hit them firmly between the eyes “Where do I get cash from?” speaking from personal experience “Beg, borrow and no, no stealing” and “think outside the square”.
Almost every start-up’ gasps for cash and is under funded from inception. This starves the business and crushes the dream of the entrepreneur. How can you grow without cash ? It is king after all!
(Cont’d) My best tip is borrow as much money whilst you are still employed and have a job to meet the repayments. Don’t quit your job to chase the dream of owning a business without reading these two books ‘The E Myth’ and ‘the 7 Habits of Highly Effective People’ in my opinion it is financial suicide to take a leap of faith without arming yourself with as much knowledge as possible.
The main way start-ups are funded is by personal borrowings against the equity in property. This is generally the cheapest option as well because you are borrowing at residential rates as opposed to a commercial rate. In the case that you are buying a turn-key Banks are more willing to lend to well established franchises and will lend up to 70% of the purchase price. Even if this is the case you will have to fund the difference, this could be as much as $150,000.
By now you might be groaning that you know this already and begin rapid free fall at the thought of your idea being lost forever simply because you weren’t born rich. So what do you do if the bank won’t lend you traditional finance and you don’t have enough equity in your property ? This is the part where I earn my keep.
I have seen people use credit cards and personal loans to get started and slowly build up their business one step at a time. This can work if you have a great business model and when cash flow is strong enough to pay the debt back as quickly as possible. This model ONLY works if your business is a cash cow !!!
If you have an amazing idea, a detailed business plan and have really done your market research then consider bringing in a “business angel” or investor’s. Business Angels help start-ups with more than just finance and prefer to get involved in the big picture issues. A business mentor can help you and the business reach your true potential.
Funding from family and friends is another option. If you are going to do this then see a lawyer otherwise ‘BBQs ‘and ‘holiday get togethers’ could be forever changed for the worse.
Good luck with your dream and remember it is possible, it just may not be the way you first dreamt it to be. To have any question regarding funding your start-up answered and feedback on this article please contact Sarah Wells at firstname.lastname@example.org.