Picture this: You've decided you're ready to start your own business. You've been brainstorming about your product and how you'll reach customers. The ideas are coming fast and furious and you realize that at this stage of the game everything is possible, and all you really need is ... cash.
The stark reality of starting a business is that it takes money to make money. Fortunately, it doesn't take much, and there are lots of creative ways to go about financing your start-up. You can break the whole process down into a few steps, and as you tackle each one you'll have more time to spend growing your business and less time worrying about how to finance it.
Figure Out Your Costs
The first thing you need to do is make a list of all your start-up expenses. Don't forget to include things such as materials you may need for making items by hand, including packaging.
You need to compare prices for anything you'll have other companies to provide, so you'll know you're getting the best deal possible when you begin.
Let's say, for example, you're planning to sell hand-painted denim jeans. You have a choice: You can buy raw denim, pay a manufacturer to make the pants and then hand paint them, or you can buy finished pants from a plain-label jeans-maker and start from there. The route you choose will depend on the cost difference and the convenience factor. If you need to spend most of your time painting the jeans yourself, you might not want to spend a lot of time supervising a jeans manufacturer. It's called opportunity cost: the cost of spending time on one thing when you could better spend it doing something else.
Once you've figured out the costs of production and supplies, calculate how much you'll need to spend on publicity and marketing. Initially this might be as simple as printing up mailers to let people know you're in business and business cards to use as you network.
If you're painting jeans you might include pictures of your creations on a color brochure that you'll send to all the clothing stores in your area. Don't forget to calculate the cost of postage into your total.
Fairy Godparents (or, Where to Get Money)
Now comes the tricky part: finding someone to put up the money to get you started. One option is to do it through savings. If you're leaving a lucrative job to start a business, you may be able to stash away some money before you leave. If that's not an option, consider borrowing. You can borrow from banks, venture capital firms, relatives -- anyone who'll offer you funding at a reasonable interest rate.
Generally you'll have to have a business plan -- a calculation of how much you'll need, how you plan to spend it and how much you'll have to sell to be profitable. Business plans can also involve complicated calculations that provide sales models and estimate the likelihood that you'll be profitable in a certain amount of time.
If you know anyone in business school, find out whether he or she has a sample business plan you can use as a model. Or better yet, find out whether he or she can write your business plan as part of a school project. You never know.
Take your plan to your potential lenders. This is a good time for start-ups, since so many of them have had highly publicized success. Once you get the money, you can refocus on starting the business -- with one caveat: Keep an eye on your expenses at all times and make sure you have enough for the long run, not just for the next few days.
Ways to Keep Your Costs Down
- Go grassroots -- Do as much as you can in person. That includes going from store to store and (using the jeans example), talking to managers about stocking your jeans.
- Hire an intern -- See if you can work out a relationship with a nearby college that will allow you to teach an intern how to start a business in exchange for course credit.
- Buy in bulk -- Try to get volume discounts for any supplies you need.
- Negotiate -- See if you can work out relationships with vendors to offer you better rates if you bring them repeat business or get them referral business.
- Barter -- Don't be afraid of the age-old trade system. See if you can swap service for service with a vendor. For example, offer to do some free hand painting on a T-shirt store in exchange for being listed for free in their catalog.