When you decide to launch a new entrepreneurial venture, you are probably thinking first and foremost about your big business idea. After all, you wouldn’t be taking a leap of faith and starting your own business if you didn’t believe in the core product, service, or concept behind it. Many entrepreneurs fully trust that their ideas have the power to change the world, and while this confidence might be a little naïve, it’s also good to have that kind of trust in yourself and your venture.
The Money Need
However, to be successful, a new business needs more than just an idea: it needs startup money and working capital. Without money, you can’t develop your products or bring your ideas to fruition. Without money, you can’t market your business and build your brand identity. Without money, in essence, your business can’t succeed.
The issue is that, if you are like most entrepreneurs, money is the very last thing you initially want to consider. Money makes things messy and calculated, and launching an entrepreneurial venture should be all about inspiration and aspiration. Still, money is a reality, and you will need it to build a business durable enough to last. With that in mind, here are some basic do’s and don’ts for obtaining working capital for your business.
Do Stay Organized
Because many entrepreneurs hate thinking about money so much, it’s not uncommon for small businesses in the early stages to flounder based on poor accounting strategies. One of the first things you need to do for your new venture is to design a bookkeeping system. Keep track of everything, from sales to employee wages to how much money is in your business bank accounts. Having organized finances will help you in countless ways, from letting you know what your business can and cannot afford to highlight expenses that might qualify as tax deductions. Being smart about how your business handles money is one of the most important steps to making sure you have working capital when you need it.
Don’t Ask Friends and Family for Money (Unless You Have No Other Option)
There may come a time in your business’s lifetime where you either need to ask friends or family for financial assistance or close the doors. In such do-or-die situations, asking for help from loved ones makes sense. However, you should view your friends and family members as a last resort for obtaining working capital. Tap into your personal savings first, and look into lending options second. Friends and family members might seem like good investors, but putting the burden of owed money on your personal relationships can cause strain or awkwardness even in the best circumstances.
If you do need to turn to your loved ones for money, do so formally: present your business plan, be candid about the state of your business and the risks involved in the investment, and give your friend or family member an easy “out.” You don’t want a loved one to feel trapped by your proposal, so make it clear that they can say no without any hard feelings.
Do Look into Working Capital Loans
Many traditional lending institutions are notoriously stingy about lending to small businesses. Therefore, going the traditional bank loan route to obtaining working capital may well be a no-go. Luckily, there are other loan options out there. Look for a financing group that offers working capital loans. These loans are designed specifically for small businesses and are much easier to get approval on than traditional bank loans. That’s not to say that every entrepreneurial venture will be able to get a working capital loan: you will need to have been in business for at least a few months and be able to show decent gross sales. However, with the right lender, a working capital loan might just be the perfect way to keep your business afloat or finance the next stage of growth. Just know which questions to ask a working capital lender, including questions about repayment terms and the policies for getting additional loans in the future.
Don’t Look to Investors
The TV show Shark Tank has convinced many an entrepreneur that getting venture capitalists to invest in their business is one of the best ways to obtain capital. While getting a high-profile investor in your corner might be a mission for the future, though, it’s not a worthwhile endeavour for new ventures that are just getting started. If you’ve ever actually watched Shark Tank, you know that the so-called “sharks” will baulk at any investments that can’t show high sales figures or plans for growth. In other words, investors aren’t the way to get off the ground. You need to demonstrate that your business model works before someone will want to buy equity and start helping you out. Plus, it’s good to hold on to your equity while you can.
Coming up with money to grow your small business and keep the lights on is no easy feat—especially at first when your venture is just getting off the ground. However, by knowing where and where not to seek funds—and by being smart about your finances—you can find ways to get by until your business reaches a more profitable point.