Many people dream about owning their own business. Being in charge of one’s destiny is a worthwhile and often rewarding goal. However, no matter how determined an individual might be, there is always one potential obstacle, and that is money. How can a budding owner get a small business off the ground with limited funds?
Reducing startup costs
Before launching head-first into a new business venture, an entrepreneur needs to write up a business plan. This initial blueprint defines what the business is going to be, its mission, objectives, and goals. The business plan also needs to include a budget with clearly defined revenues and expenses. Once the rough draft is complete, look over each of your business expenses and determine where reductions are possible. For example, you might have your mind set on leasing an attractive office space in a high traffic area, but the space you want could carry a high cost. It’s often best to seek out a less costly space for now, and then consider moving to a larger, more visible space in the future when cash flow has improved and finances are stable.
Even the tightest, thoughtfully planned, and perfectly executed budget may result in a financial shortfall, and when that happens, external funding could be necessary. Here are some ways to obtain additional capital:READ MORE: Chicago Lead Water Pipe Replacement Program Hasn't Started, But It's Already Being Expanded
- Asking Family – Often one of the first places new business owners turn for money is family. Loans from family members are a good idea when you need flexible repayment terms and when your personal credit history is lackluster. However, this option should be approached with caution, as it can lead to strained relationships if the business falls flat.
- Small Business Administration (SBA) loan – Obtaining a loan from the SBA is a good idea for small business startups. The terms are often better than those offered through traditional means, and some of the options include grants, which is free money that doesn’t have to be repaid.
- Borrowing against your own retirement funds – This is another good option for those with questionable credit. You can borrow against your retirement plan without credit approval, and as long as you repay the loan, you avoid the penalties and taxes associated with taking a withdrawal.
- Crowdfunding – This option is growing in popularity and for good reason. Crowdfunding can provide exactly the impetus of funds you need to grow your company, and since others are providing the funds, there is no need to pay anything back.
- Banks – Traditional banks still remain a popular choice for small business loans. If you select this route, be sure your personal credit history is generally blemish-free. Banks may insist on securing the loan, so borrowers need to make sure they have sufficient collateral assets.
Start your business smart
Small businesses require planning and execution. Having a large pool of funds at one’s disposal is certainly an advantage, but it is possible to start a new business venture with limited capital. Prepare a budget, make cuts where possible and look for outside funding if necessary. Follow these simple steps and you could be well on your way to small business success.
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This article was written by Bryan Carey for CBS Small Business Pulse