For the entrepreneur looking for finance for their fledgling business there are a lot of different options available, from self-funding, and angel investments to grants and even venture capital funding.
The question that pops into most entrepreneurs’ heads once you’ve decided that you want to go into business for yourself, what exactly are the steps required to start your own business? Whilst the procedure for starting your own business may seem confusing at first, the process is simple once you begin looking into it.
However, there are some decisions that you must make early on that could have a long-term impact on your business in the future, so you’ll want to ensure that you get these steps correct.
The best way to really find out how to start your own business is to write a business plan for your new business. This business plan will map out the strategies and financial aspects of your business idea and will quickly tell you whether the business is likely to be a success or not.
A business plan is useful for entrepreneurs as it can help them check their figures and set goals. It is also very useful to have to show third parties, such as potential investors, as to how you envision your business working, and what needs to be accomplished to make it a success.
A business plan is important because it allows you to think about the potential business expenses that you will incur and help calculate how many sales you will need and what time frame you need to make them it, to be successful.
A business plan will also highlight certain things that you might think you need for your business but is really a frivolous expense. Some small business ideas do not need a lot of capital to start off, but other businesses need a lot of initial capital to start trading.
For example, depending on the kind of business that you are operating, you might think it is a good idea to rent office space, but this is a huge expense- especially depending on the business location.
If you are running an online business or online store it might be possible to launch from a home office instead, saving you on a huge outgoing expense each month. Your business plan will highlight these vanity expenses and you will get the insight and know how as to what business expenses are a must have, and which can be put off until a later date.
This is an important consideration if you are looking for outside investment, since any company or person looking to invest in your business wants to see that you can balance the books and not waste money on startup costs you do not really need to spend.
A business plan is also the time to conduct market research to see who your customers and competitors are. You need to understand your target market and what their requirements are.
It is rare to come up with a truly unique idea in business, so if you think you have found a gap in the market you should be sure that there is a demand for what you are offering. Sometimes a gap in the market indicates that there isn't a market in the first place. In these situations, you need to be honest with yourself and find out by speaking to your potential customers as to what they think of your potential idea.
You might consider outsourcing some of your business functions, so that you both save time but also deal with things correctly and professionally.
When you outsource your business functions you do incur added expenses, but these can be budgeted for, and often when first starting out it is cheaper than hiring internal staff to handle the processes. This sort of small business administration can take up a lot of valuable time, so if finances allow it is worth considering outsourcing some of this administration.
Other things such as software can save you time and effort. For example, if you are planning on doing the bookkeeping yourself in the beginning you might consider doing it in a spreadsheet, but professional accounting software can take out a lot of the hassle associated with this and be fairly cost effective.
All these considerations need to be covered by your business plan and initial research. The more time you spend on this process the better chance your business has of being successful.
The next step is to decide what type of company and legal structure that you want to set up. Each country varies, such as Limited Liability Partnerships and LLCs, and wording can be subtlely different in each market, so do some research in your local and your target market to see what type of company might be best for you.
One of the key steps that small business owners need to ensure that they get right is business finance. In short you need to be able to answer the question, how to finance a brand-new business?
There is a cost to doing business and when a business is brand new, often the business is losing more money than it makes. Although this is a common situation, the business does need to eventually reach a point where it is profitable.
One of the big issues that a business owner must deal with is managing cash flow and ensuring that they have enough cash in the bank to cover all business expenses. This is often overlooked by brand new entrepreneurs and sadly is one of the main reasons a business fails. Sadly, it is common for a new business to simply run out of money before it has managed to establish itself in the market with a customer base and has become a profitable entity.
If you have identified that you will need to raise finance for your business, the next question is how? Finance can be raised through a wide variety of means. Some of the more common ways to raise finance is as follows:
Self-Financing or Borrowing from Friends and Family
Perhaps you have your own start-up capital, or you are thinking about borrowing this from friends or family. Both can be good options if they are open to you, however if you borrow money from people you know, if your business is not successful then you are in danger of upsetting people that are close to you if you can't pay them back. For many individuals this is not something that they want to risk, especially since many brand-new businesses fail in the first year or two.
Some people who do not have savings to fall back on may consider starting their new business on their credit card. This is not normally a good idea since credit card limits are generally quite low, and the repayment and interest quite high. You may hear of the occasional success story where an entrepreneur has started out this way, but for most individuals, this option should be dismissed.
Often entrepreneurs will either look to the bank, venture capitalists or angel investors for money. If you are launching a business that will be relatively small initially then sometimes the bank or venture capitalists will not be interested in helping you, especially if you do not have an established track record as an entrepreneur. In fact, you will most likely find that banks have no interest in lending money to start ups and will only consider lending to established, successful businesses. Sadly, it seems that the era of small business loans from traditional financial institutions is over.
One option if you are launching a new business is to look for government grants and loan schemes in your local area. These can be a great way to generate some free finance for your business, or at the very least get a low interest loan.
On the surface these schemes look to be a good idea, but they do come with some caveats that entrepreneurs need to be aware of.
When it comes to grants, governments look to promote entrepreneurship in certain industries and markets that need a boost. So, a business may find that there are grants and scheme out there but are not applicable to the business in question.
Another big issue with grants is that they can take an awful long time and effort to complete. This doesn't always suit an entrepreneur’s schedule, as often when they come up with a new idea, they want to take it to market quickly and not wait around for months for a grant to come through.
Another option is for new businesses to look towards private investment for help as this type of financial support can be great for launching a business.
This kind of private investment is commonly known as angel investor and consists of high-net worth individuals or investment groups that look for start-ups and business ideas that they can invest in at an early stage.
Often these investors in return for capital will receive a certain amount of equity from the business. This means that if the business is successful the investor will make a very good return on their initial stake. The other side to this is that investing in start-up businesses can be a very risky endeavour, but investors who do their due diligence will make an educated decision as to the potential success of the business that they invest in.
For many business owners the thought of giving up some equity in their business can be difficult decision to make, but the upside is that often an angel investor will provide investment capital into businesses, that traditional lenders wouldn't be comfortable investing in. This means for some small businesses, releasing equity and taking on board a partner such as an angel investor can be the best way to make the business successful.
Without operating capital, it can be very difficult for a new business to get off the ground, and by partnering with an investor, it means that the business stands a better chance of growing and becoming successful.
Another benefit of taking on an angel investor is that they often invest in types of business that they have experience with. In some cases, this means that the angel investor will provide a level of mentorship and support for the new business. For example, as many investors are experienced entrepreneurs themselves, they can open doors to business contacts and markets that would otherwise be inaccessible to a brand-new entrepreneur.
You also need to ensure that you're following all the local tax and business laws that are required in the country that you are based.
It can be a good idea to hire an accountant to help with your paperwork and sort out your business taxes. For some business owners it can be beneficial to also hire a solicitor or lawyer to help with the business structure, planning and incorporation. A solicitor or lawyer can advise you whether you need any specific business license to start trading.
If you are planning to hire employees there will be some legal things that you need to ensure that you get right, so subcontracting HR functions might be an option for a small business. This varies in each country so it may be worth dealing with a local rep as well as seeking advice in your target markets where you plan on hiring. Some countries have more lenient policies with remote work and hiring abroad than others - and it may require legal advice in some.
You will also need to arrange a business bank account and ensure that your business is properly registered with the relevant authorities.
You might want to consider some form of business insurance or liability insurance if applicable as you do not want to end up with expensive legal issues and not be covered. If you are a sole trader then you might need personal liability insurance. You should speak to a professional to find out what is best for your own needs.
No matter how good an idea you have, it's not going to turn into a successful business and attract potential customers unless people are made aware that your business exists in the first place.
If you have the money then hiring a professional agency full time is one of the best ways to promote your business, but for many small business owners this is just not an option in the beginning. The downside to marketing is that it can be expensive, but the good news is that there are some basics that every business should cover since they are low cost and, in some cases, free to do.
You can put together a basic marketing plan yourself and there are plenty of templates online and step-by-step guides that will give you a head start and help you promote your business so you can make money.
You should register a domain name and build a web site, as this is a great way for you to get across to potential customers what your business is about. If you have an ecommerce business model then ultimately this is one of the first things you might want to do, regardless.
Setting up your business on social media, such as Facebook, LinkedIn, and Twitter are also a good idea, even if you are not going to be using it for a while, since you want to ensure that you can get your business name as a profile.
Once you get some customers, then email marketing is another low-cost way to market your business.
if you're an entrepreneur looking for business finance then the Angel Investment Network can help connect you with investors and high net worth individuals who are looking for business opportunities.
The Angel Investment Network has been created to help created entrepreneurs with investors. One of the benefits of the Angel Investment Network is that it is a global company meaning that as an entrepreneur or an investor you can find partners from all over the world.
Entrepreneurs can sign-up to the Angel Investment Network to post details of their project to start the process of attracting finance and connecting with like minded individuals.
AIN helps investors and entrepreneurs build lasting and profitable relationships to build better businesses and brighter futures.