How to get the money for starting your business?

If you have a business idea, in most cases you need to have money to realize it. Most things cost money and they should generate you with a profit for these investments. In order to get money or capital, you first need to assess how much money you really need.

Assess how much you really need

First assess how much you really need for setting up the business, expansion or growth. And then, where to spend it on.

Map your personal expenses

First, you assess your personal income by how much you need to make a living, and then estimate the expense for your business, then you have a full financial overview of your total expenses.

Start by listing your expenses/cost from 1 month (yes, all of them) then multiply by 12 – that’s your yearly personal expenses. You can find more about personal expenses in your area here (Numbeo) cost of living.

Estimate the cost of running the business

Now try, to get an estimate of the cost of running the business with a certain sales revenue. Say, if you sell 100 products with 10$, that’s 1.000$ revenue and you have 800$ cost of doing this (for example the cost is inventory buy, store rent, promotion, labor for selling it, etc.). Maybe you need 800$ in advance to prefinance your revenue. (Say you need to purchase product in advance).

Now, you have a rough business case from your personal expenses (which is your minimum profit level you need from your business) and your business cost level. This is the minimal profit total you need to make.

As costs go: you can write down a large capital investment in 3 years for starters. (say if you buy machines, or other equipment, etc. ), then after a discussion with your bank/investor/network/accountaint, you could make it the cost estimate more realistic.

You could benefit from a financial businessplan template to map out your financial needs and list the expenses, and then check if they are done correctly. First, your financial calculations will be an estimate and later after some research and discussions, it will be more realistic.

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Download a financial businessplan template here to start calculating your business loan level

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Be trustworthy and be prepared

If you prepare better by mapping out your business strategy, writing your financial calculations, researching an documenting the market opportunity and when you are doing your homework, you become more trustworthy.

That means sometimes making a business case more than 5 times. Now, you know how much time it really takes. It also good to have some of your own savings put into the business to really show you are serious about this. This is hard, if you don’t have any money saved. (so start now by saving a bit)

Did you know 65% of the startup money needs come from family, friends and fools?

Even 65% of the startups get their money from family and friends. If you need money for growing your business, first, you could think in your own network and family for getting the money. For most startups, family, friends, relatives are the most common place for to get funding.

However, this can be difficult later, if you can’t pay back the loan, which makes problems for your friends and family. Often the bank has increased barriers not to provide you with the loan, and so it is easier for relatives to provide you with capital. But, for this you need to be equally prepared.

What also helps is first going to the bank manager, ask what they need for input to provide you with the loan, do you homework, go bank to the bank and provide the necessary details and then ask what they think on it (get feedback). And then if you don’t get it, you still have a sound financial plan, to use for getting a loan from your family network.

Ask an experienced enterpreneur in your network

To save you from a bank trip, you could also ask a more experience enterpreneur to take a direct look at your financial calculations, he or she will certainly have an opinion on this. And even he/she might be enthousiastic and interested in joining your business opportunity, perhaps with a bit of capital to get you started.

How to calculate the value of your business?

Sometimes you need to calculate the value of your business in order to get a business loan (or equity). Mulitple ways are available to get an estimate or your potential value of your busienss. You could start here by using these valuation purposes. Try this for calculate your business value (Equidam). It’s a bit elaborate, but it will help you certainly to get a better feel of your business value.

Capital expenditure – what will you spend it on?

You first determine how much you need for setting up – most of the expense elements are these:

Staffing for developing the solution (labor, think or number of people, price per hour, how many you need per week/monthly, etc.)
Setting up the business (general, administration, legal fees, infrastructure, office, bookkeeping, etc.)
Product development cost (the cost to develop your product/service or business offering – list everything from labor, tech, and other resources)
Promotion & sales (creating marketing materials, mediaplacements, setting advertisting material, paid salesforce, etc.)
Inventory cost (decrease risk by not owning the gear but instead do it on ‘consignment’ / loan or try to work with partners who are willing to provide you with a small batch of product for try out purposes)
Operational Working capital (reserve, risk, ongoing expense like salaries)

Use existing cashflows to finance growth

Can you finance it from existing cashflows? If you already making money on the business, you could reuse that free cashflow to finance small investments. This way you don’t have to go the banks, and do all the hassle. You save loads of time. But the process in getting capital is relevant, the process of getting capital forces you to take a good and hard look at your business (opportunity). After calculating multiple business case and creating a nice powerpoint deck, you could approach banks or investors.

Off course the banks

You’ll need a sound approach for this. Most of the times it’s hard, but getting a loan should be hard, and it enables you to take a long hard look at your business, which can be good to do. You could go to your existing bank office in the area, and have a meeting with a bank manager. Before this meeting you should have all the numbers available or roughly sketched out.

Ideas – Where to get capital (not from banks)

Friends & fools / family – most used – rich uncles/aunts
Micro finance institutions – small business loans providers
Crowd funding (try these sites) – (peer to peer lending networks)
Government grants & subsidies – paperwork / specialized
Investors – seed capital
Other enterpreneurs – losing control of business
Own savings – if you put in your own savings, you will be more conscious (skin in the game)
Try to get excess money from job and then save it for the business
Cashflow to fund growth (small investments
Try to minimize capital needs (on a shoestring) – working with volunteers, free software, and running a business with low startup capital needs – but then you grow slower.

Savings tips and possibilties to get operational with less money

Not work from office, but rent or share or try at first with no office. Maybe you could share resources with a partner.
Not work with staff, but do it yourself (this is time consuming, but you’ll spend only your own time)
Work with free tools (most business software comes with free versions, start with trying out these)
Ask potential customers if they will buy from you (or even pay-up front)
Do you have any ideas ? List them here in the comments section below.

Repayment capacity

It is hugely important to have a proper repayment possibility in place. If you can show with your financials that you can repay the loan with interest, and stick to it, the the risk for the lender will be lower. And this increases the chance that you can get the loan in the first place.

Good luck!

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Download a financial businessplan template here to start calculating your business loan level

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