Of all businesses that fail, 82 percent do so because of cash flow problems. Running a business is pricey—you need business startup funding to cover prototype and production costs, stock and supply chain, rent and website maintenance, marketing, market research, and early employees. And all that is before taking a salary yourself. According to one study, the median start up costs are about $15,000—a sizeable sum, but one that isn’t entirely out of reach.
Startups can take years to become profitable, so at first you can’t rely on sales alone to fund your startup and keep your new business afloat. If you are wondering how to get funding for a business, consider these techniques to get your venture started.
If you are looking for business startup funding, your first stop should be your own resources. Most startup funds—82 percent—come directly from the entrepreneur and their friends or family, and 77 percent of small business owners rely on personal savings to fund their business upfront.
The benefits of bootstrapping, or funding your own venture, are many. For one, you aren’t in debt and you don’t have to share equity with an investor. Funding your own business with your savings will force you to make and keep a budget and be responsible with how you spend money. The downside, of course, is a depleted savings account. This could put you in a vulnerable situation in case of an emergency. Before self-funding your business, set aside some savings to live off of until you can afford to take a salary.
2. Business Partners
For funding that complements your own personal investment, try looking for a business partner. Not only will a partner double your brainpower and creativity, but he or she could also add some of his or her personal savings into the business—and will care about its success as much as you do as a direct result. With two founders, you’ll increase your chances for success by raising an average of 30 percent more money, three times the user growth, and will be 19 percent less likely to attempt to scale too early.
3. Bank Loans
Another way to secure business startup funding is through a small business loan from the bank. You’ll need to apply for and qualify for this type of loan, and keep in mind that it is a source of debt that you eventually will need to pay off. However, many banks have expressed interest in supporting small business growth, and you may be able to find a good loan with affordable interest rates to help fund your startup.
Crowdfunding through a site such as Kickstarter and IndieGoGo can be a fun way to secure funding for a small or creative project. These sites allow you to raise money from individuals across the internet to support your business endeavors. You can create a campaign, set the amount of money you want to raise, offer perks for donors such as early access to the products, and create marketing videos to tell your story. This kind of business startup funding is best for smaller amounts of money short term. For example, a crowdfunding campaign might help you launch a specific product or initiative, but it wouldn’t likely provide the funding to keep your business going long term.
5. Angel Investors and Venture Capital
If you are launching a tech startup or something you hope to scale big and fast, you might need to look for cash from an investor. The money you can get from angel investors and venture capitalists will help you really get established with an office, employees, and overhead expenses.
Angel investors are established business people who earn money by investing in a startup with potential and cashing out when the business becomes successful. You’ll have to pitch these investors and prove to them that your idea and you as an entrepreneur are worth taking a chance on.
Venture capitalists can offer you even more money to play around with—we’re talking $1 million plus—but they expect you to have early successes, an airtight business plan, and a viable exit strategy. Find an investor at AngelList, the National Venture Capital Association, or ask around in your local network or business associations. You may also find investment opportunities at local business plan competitions.
One of your primary tasks as an entrepreneur is to secure funding for your startup in order to give it the best chance at success. For more tips on starting and building a business, register for a Daymond John’s Success Formula event today.