MoneyMagpie

Feb 04

The Importance of Financial Planning

Reading Time: 3 mins

Money is something that everyone wants to have a little more of. Dealing with finances can be stressful for everyone, but particularly when we are starting up a new business. There are so many things to remember, such as licenses, insurance, and other additional expenses.

When we’re starting, there can be an overwhelming amount of expenses to deal with, and there may even be several more outgoing payments than incoming ones. We need to plan for these times so that we can be prepared, and not end up in a difficult financial situation.

 

How to Finance a Small Business

The first step when starting out with funding our small business is to work out exactly how much funding we need. Hopefully, this is something we may have looked at as part of a business plan, so we may already have an idea of the expenses we will be dealing with before the company is fully operational.

Self-funding

Once we’ve worked out how much start-up funding is required, then we need to decide the best way to acquire it. The first and most straightforward option is self-funding. This means using our own financial resources to support the business in its early stages.

The benefit of this is that we can maintain complete control over the business. However, it also means we’re taking on all of the risks involved. It’s critical not to spend more than we can afford to, especially when tapping into requirement accounts or similar financial assets.

Venture Capital from Investors

Another option for funding is to try and get venture capital from people willing to invest in the business. Venture capital is usually offered along with an agreement for an ownership share or an active position in the company. Most investors will often, at the least, want a seat on the board of directors. With this method of funding, we need to be prepared to relinquish some control of the company.

There are a few key ways in which venture capital differs from other funding methods. It will usually help to direct high-growth companies, making it beneficial for both us as a business owner, and also the investors. It’s also not a loan, as the investors are pledging their funds in return for equity and not debt.

Venture capital can also allow us to take more significant risks with the potential for higher returns, as we have slightly more financial freedom than with a loan or self-funding.

Small Business Loan

If we want to retain full control over a business, but don’t have the funds to start on our own, then small business loans are a fantastic alternative. If we’re going to have the best chance of securing an investment, then we need to be professional and have a business plan, an expense sheet, and financial projections prepared.

All these things are useful for us, as they give a better indication of how much we need to take out for the loan. Also, they will provide a bank with more confidence in their investment in you.

However, banks are not the only option we have when searching for a loan. Especially when our credit isn’t great, we may have better luck searching for a loan with an independent company. In the current times, this kind of independent loan company has become increasingly popular. It’s just essential that we research to find the one with the best interest rates for what we want.

 

The Verdict

No matter what type of business we’re running, there are a few options for getting the money to get the company started. While self-funding and venture capital are both valid options, small business loans are a happy medium for any new entrepreneur. It allows you to keep hold of your personal finances, while also maintaining control and ownership of the business. Definitely something worth thinking about.

 

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