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Nowadays, more people are turning to entrepreneurship. With job losses increasing, many people want to be in control of their financial future instead of relying on another company. If you wish to supplement your salary with a side hustle or open a business full-time, there are a lot of things to take into account when starting a new business.
Of all the entrepreneurship tips, how to fund your business should be on the top of the list. Entrepreneurs often underestimate the amount of money they need to start a new venture. Underestimating costs and not having enough cash can slow the progress of the business and lengthen the time it takes for the company to turn a profit. While big-picture thinking is efficient for other areas of running a business, business owners must dig into the details regarding costs.
When drawing up a budget for a new business, most entrepreneurs will budget for costs like inventory, equipment, salaries, rent, and utilities. You may not plan for other more minor expenses that add up to a large amount but are necessary to launch your business. Depending on your company and the industry you’re in, other costs may include licensing, permits, fees, advertising, and point of sale equipment.
To set yourself up for success, you have to spend time planning your budget and anticipate every cost. Also, build room in your budget for incidental expenses or work that you may need to repeat. For example, you may have a vision for your branding, but after your graphic designer sends you the proofs, you realize it won’t work and will need the work to be redone.
As a new business owner, you must prepare for hiccups along the way since you are likely dabbling in unfamiliar territory. These hiccups can have financial implications, so build this into the budget.
When you have a better idea of the amount of money you will need, you can look at financing options. There are several options available to start-ups, so do your research to find one that works for you. Some popular funding options include:
An excellent starting point is to use your own money. If you have savings, you can invest them in your business or start saving money you can use to start a business. While it is not advisable to sink all your savings into your business, using some of your own money will show banks and potential investors that you are committed to the project and plan to be in it for the long run.
Still, using all your savings isn’t wise because it takes at least a few months for a new business to start earning profits. While the company is taking off, you will probably need to use your savings to cover your living expenses since you won’t be drawing a salary.
To determine how much of your savings you can realistically afford to put into the business, calculate how much you would need to meet your living expenses for about six months and look for ways to cut back, just for a few months. After taking a portion for living costs, earmark another small amount for emergencies and the balance you can put into the business.
As a new business, you’re unlikely to qualify for a business loan as these loans are typically given to companies for a period of at least two to seven years. Still, you can apply for a personal loan and use it to fund your business. There are lots of personal loans available from different lenders. Each loan has its own terms, so you would need to get quotes and compare them to find one that suits you.
Before applying for a personal loan, you must determine your credit score. Knowing your credit score will help you decide where to apply for a loan. You can apply for a loan at a traditional lender like a bank if your credit score is high. Bank loans are often the most favorable as their interest rates are low and the loan term may be longer, giving you more time to repay them.
Other lenders can provide loans to folks with poor credit. The terms of bad credit loans are less favorable – they have higher interest rates, and you have a shorter time to pay them off. But, taking these loans and then paying them off within the stipulated time will help improve your credit rating, making you eligible for better loans.
Microloans are small loans that are offered by nonprofits that are interested in uplifting poor communities. You can apply for a microloan if you’re a business owner from a disadvantaged background or a minority. These loans usually have good terms, and apart from offering money, the lender may also provide other assistance like guidance, training, and business advice.
Have a Plan
In the excitement of building a business, it’s easy to throw yourself into it without having a clear plan. This approach can waste time and valuable resources. Before you get to work, spend time drawing up a detailed business plan. Your plan must be detailed enough that it guides you but flexible enough that you’re able to adapt to changes.
A detailed business plan will also be a helpful tool to use to convince investors if you want to apply for funding.
When drawing up your business plan, think about the following:
- The type of business you want to go into
Do you want to be a sole proprietor or would a partnership or LCC be more appropriate?
- Products or services your start-up will provide
If you are a product-based business, where will you source your products? You can manufacture products or buy them wholesale as finished goods ready for resale. If this is the case, will you have your own branding, or will you sell another branded item? If you’re a service-based business, do you have all the skills necessary to offer the service, or will you need to hire other professionals? Also, consider any training you need to update your skills as demands change and technology develops.
- Your target market
Your business plan must contain a description of your target market. Understanding your target market will help you to meet their needs and adapt your offering to suit them.
- Mission and values
Your mission dictates why you are in business and your values will guide you and your employees to work and behave in a way that aligns with your principles. The company values also tell investors what you stand for.
Before starting a business, you must know what you want to achieve. Set short-term and long-term goals and ensure they are realistic and measurable. For example, saying that you want to increase brand awareness is an unmeasurable goal as it is difficult to determine how many people will learn about your brand. A measurable goal can be to visit five potential clients weekly or make $10 000 in sales in the third month. Having clear, quantifiable goals gives you something to work towards.
An essential skill for every entrepreneur to master is networking. While industry knowledge and skill are necessary, who you know also plays a role. A business is not an island; a large part of a company’s success can be attributed to networking.
Networking provides you with the opportunity to build relationships with other people in your industry, with people who can help you grow your business and with customers. It is also a powerful word-of-mouth tool. People are keener on working with and supporting business owners who they know than faceless companies.
Meeting in person is the easiest way to form relationships so sign up for events and attend trade shows related to your field. You can also network online, which allows you to widen your scope of contacts.
Solve a Problem
There are tons of new and old businesses out there, and while there is room for everyone to compete, you must ensure your business stands out. To do this, your business should solve a problem that customers face. This is called a value proposition. When you show consumers that you can solve a problem they have, there is a higher chance that they will support your business over your competitors.
The problems you solve don’t have to be complex, they can be simple problems that are easy to offer a solution to but that add value to your customers. Take the time to learn about your customers and their pain points and develop an offering to meet their needs. Many business owners do it in reverse. That is, they have a product and then try to convince consumers that they need it.
For example, you want to open a coffee shop in a busy part of town where a lot of young people who enjoy coffee work. These people are environmentally conscious and do their best to reduce their carbon footprint.
They like grabbing coffee on the way to work but feel guilty about buying coffee from competitors because these shops either sell coffee in single-use cups or ask customers to bring their own reusable cups they can fill.
A problem these consumers face is that, because they are rushing to work in the morning, they often forget to bring their own reusable cups and then skip buying coffee because they don’t want to buy a reusable cup.
To solve this problem, you can perhaps offer a service where you can sell coffee subscriptions. A customer can pay upfront to have five or ten cups of coffee that they pick up on the way to work and they can either return the cup or you can collect the cups after work every day since your shop is close to where they work. This solves the problem of using single-use items and the customer not remembering to bring their own cup.
You Can Never Know Too Much
Research, research, and more research. Take your time to get to know everything about your industry. Learn about trends and developments. If you’re importing products, find out about the logistics. If you need more stock in a hurry, how long will it take to reach you? Know what your products are made of and what the manufacturing process is. If you’re manufacturing products, compare your methods to that of your competitors.
Learn about your target audience and their spending habits. Find out when they shop and how they pay. Know what drives them, their other financial obligations, and what motivates them to buy similar products or services in your industry.
Familiarize yourself with the ins and outs of running your type of business. Compare different payment options and different kinds of advertising. So many facets go into running a business, and being aware of them will help you make important decisions.
Identify your competitors and learn about their businesses. Knowing your competitors will help you identify potential threats and opportunities, so you must always keep up to date with the other companies in your industry.
Know Your Skills and Outsource Where Necessary
As much as you try to learn, you can’t do everything yourself. Also, attempting to do everything alone can be inefficient and counterproductive. It is essential to be self-aware – you must know your skills and strengths and use those to develop your business.
Jobs that are out of your area of expertise should be outsourced. While it may cost a bit of money to outsource some jobs, it will save you in the long run.
If you try to do them yourself and do them incorrectly, you will have to get a professional to redo it later, when it could have been done correctly the first time. You probably won’t need a large staff when opening your business, but freelancers can fill many jobs. Common professionals you may need to hire on an ad hoc or freelance basis include accountants, market researchers, and web designers. As the business grows and there is more work, you can consider hiring employees on a full-time basis.
Be Aware of the Risks
A new business venture comes with a few risks. Before launching, it’s helpful to be aware of the risks you or your company might face and think of contingency plans to tackle them. This makes managing it easier, making you less likely to be left blind-sided.
You may have a budget and a sales target, but businesses don’t always take off even with the most careful forecasting and planning. Maybe sales are slow, and you’re operating at a loss. Or perhaps you underestimate your start-up costs and have depleted all your funding. Many business owners fail at their first business, so you must have a plan for this.
- Market Risk
The market is dynamic and ever-changing. You may have researched thoroughly and launched a business to meet consumer demand, but that demand may quickly dip. For example, at the start of the pandemic, there was worldwide demand for masks and PPE equipment, but the demand has dropped in many areas as life slowly returned to normal.
- Entrepreneur: 15 Business Tips Every Entrepreneur Should Know
- Entrepreneur: 5 Tips for Starting a Successful Business
- Businessnewsdaily: 11 Things to Do Before Starting a Business
- constantcontact:10 Things You Need to Do Before Starting Your Own Business
- Forbes: 9 Business Tips Every Entrepreneur Needs To Know
- Startupgrind: 9 Realistic Ways To Fund Your Startup