Look for creative business start up funding alternatives. Funding a business doesn’t always mean seeking a start up business loan. There are alternatives and slavery doesn’t have to be one of them.
A person who borrows money is a servant to the lender. The borrower is in bondage, a slave until they repay the entire debt. It’s slavery because you have no real choice. You must work until you have paid back the debt. Each day is in effect controlled by the lender as you are at his mercy until the debt is repaid.
Many an aspiring new small business owner is trying to escape from being a wage slave. Unfortunately, they go from one taskmaster to another when they incur a large debt to start business. They trade their wage slavery for debt slavery.
As a debt slave your labor is demanded as repayment for a loan. When margins are tight or cash is short, you’re essentially trapped into working for very little or no pay. Sound familiar?
No slaves here!
If you’re interested in starting your own business, you’ve decided to look at opportunities that will build wealth and a financially free future. Beginning that journey with a burden of debt is not the best approach to take.
Why not take the high road and avoid debt and the slavery that comes with it? Look at some ways to minimize or eliminate the need to borrow. Remember, business start up funding doesn’t have to mean going into debt!
Minimizing start up costs.
Some types of businesses demand little upfront capital to get things going, while others require more funding in the initial stages, but less ongoing costs. The business that’s right for you will depend on your financial situation and plans for the future.
If your ambition is to own your own business and generate a comfortable income, say within three years, you want to launch a business that avoids or minimizes the need for debt.
A service-oriented business, that incurs limited upfront costs, may be ideal. Your primary investment in a service business is your time and talent, not dollars.
On the other hand, if you wish to build a business that eventually earns income not tied directly to how many hours you work, you might consider a product based business. The trade off is that your upfront costs for inventory and infrastructure will be higher, along with the continuing cost of maintaining the inventory levels.
There are exceptions though such as selling information products via the web. The key is to be creative and consider all your options.
Outsourcing, save time and money.
A creative approach to business start up funding can include outsourcing certain tasks. During the early stages of starting your business, it’s important to recognize that you can’t do everything yourself. If you’re an accountant launching a bookkeeping business, your skills are in numbers and analysis, not logo design and marketing.
This doesn’t mean you need to hire more staff – on the contrary, you’re trying to minimize your start up capital needs. However, you can outsource smaller tasks to consultants and industry professionals on a job-by-job basis. This gives you the opportunity to cut back on expenses and reduce the need for space, staffing, equipment and so forth.
For example, many virtual secretarial services exist to assist small business owners. One receptionist might work for five or six businesses at time, with a different phone line and answering service for each business. The service allows you to deliver the perception that you have a fully-staffed office with a permanent receptionist – while your expenses are a third or less of what a full-time staff member would cost.
Start slowly, start smart.
Another way to creatively approach business start up funding is to begin slowly. You can save on expenses with a staggered or part-time start up.
You can break your new business into separate segments or product offerings, take them one at a time. By limiting what you do to start out, you may find you limit your need for traditional sources of small business financing.
Another starting slowly option is to go at it part-time, not giving up your day job until you’re confident you’ll make it.
If you decide to launch your bookkeeping service, for instance, start by approaching friends, colleagues and relatives for referrals. Build a small base of clients to work with in addition to your full-time job. Then, once you have developed a reasonable client base, you could cut back to part-time at your day job, until you finally quit and make your business your full-time career.
The slow road might take a number of months, but staggering your start-up this way will avoid the need to take on new debt to get your business up and running. A safe alternative for your business start up funding.
Let’s make a deal.
Along these same lines, you could also approach your current employer – or a potential large-scale customer – about contracting for them. Your boss may be willing to spin off a segment of his business to you, and buy back your services. Now that’s a creative approach to business start up funding!
If you’re currently working in marketing, and you wish you launch your own freelance marketing and PR business, you could strike up a deal with your employer to use some of their facilities during the start up phase. They could contract with you for services and have the convenience of you being on site. It’s often a win-win for both parties as the employer saves the usual costs of having an employee on board.
Similarly, a new client might be willing to enter a similar arrangement, and allow you to work out of their office one or two days a week. Once you get the word out to contacts and colleagues that you’re planning your new venture, you’ll be surprised at the number of leads you can generate.
A novel approach – Save for it.
There is another way you can deal with your start up costs: put simply, start a savings plan now. Rather than following the modern methodology of “do it now, pay later”, spend 12 months saving as much money as possible. This will help you with part or all of your business start up funding.
There are also creative business start up funding options available through your retirement plan. There are ways to take money from retirement funds tax free to start a business. Be sure to consult with a qualified professional before attempting this.
Another option is to take some money out of your retirement fund in a taxable transaction. There are many issues to consider, but then again, how are those retirement savings doing right now anyway? The new business venture may become your new best “retirement fund.” You will build value that you can cash in on when you sell the business down the road.
So I choose to be a slave – who’ll put me in bondage?
Sometimes, as a new business owner, your business start up funding plan will require some form of debt. There are plenty of business start up funding options available to you, but they each come with their own benefits and disadvantages.
Credit cards, an evil taskmaster.
Credit cards are truly an evil taskmaster. On the plus side, they provide easy access to a set amount of funds. On the downside, you’ll pay a hefty premium to access this money. Credit cards often have the highest interest rates of all credit providers, and can reach up to 35% in some places. Truly an expensive source of business start up funding.
Even if you secure a low-interest or no-interest credit card rate, this type of financing should be avoided. If you go this route you’ll need to have a budget in place and be certain that you can pay off the balance every month. If you don’t you’ll get hit with that higher interest rate.
And it always happens at the worst time. It’s when you can’t make the monthly payment because times are tough, that’s when the rate jumps and crushes you. Credit card companies count on the fact that you won’t always be able to pay it in full. That’s how they make their money.
Small bank loans, the traditional taskmaster.
Historically, obtaining small business start up loans requires a massive amount of time, energy, and preparation on your part. In the current economy, however, it can be even harder to secure this type of business start up funding.
Lenders are now far more cautious about providing funds without solid security to back up the loan and great financial projections. As a general rule, note that banks rarely provide 100% financing for a new business loan; at best, they will often offer only 65-75% of the total start-up cost. They typically require you put in the remaining amount as an equity investment.
Small Business Administration, the government taskmaster.
The US Small Business Administration (SBA) doesn’t offer grants to start or expand small businesses, but it does administer several small business financing programs.
It provides assistance for small businesses in meeting their business start up funding needs. There are strict eligibility requirements in order to obtain this type of small business financing, and, as with applying for a regular bank loan, there is a lot of paperwork to wade through. This is where a complete business plan is invaluable.
Family and friends (at least, they used to be!)
Turning to family and friends for business start up funding is a very risky practice. If they lend money to launch your business, their vested interest in you and your well being changes, as does the dynamics of your relationship.
Let’s assume that your business is progressing well, and you’re up to date on your loan repayments to your cousin. You decide to spend a weekend away to celebrate your wedding anniversary. Your cousin may be congratulating you on the surface, but privately they’re thinking, “If you still owe me $2,000, how can you afford to blow all this money on a weekend away?”
If you decide to go down this road, you need to be committed to paying back the loan as quickly as you can. You need to know that even if you do pay it back quickly, relationships often change and are never the same again. My advice – it’s not worth it, find another way.
If you borrow from a friend or relative, formalize the small business financing agreement up front. Create loan documents and track repayments so there are no questions as to what was agreed to and done.
A partner can bring equity money to the table, while you bring the knowledge, skills and labor required to get the business off the ground. This type of business start up funding doesn’t involve debt, but still has its own risks and bondage. There are many downside risks to having a business partner.
A business partner has their own goals and objectives. These goals can be very different from yours. Your partner may go through a family crisis or divorce, a financial setback, or a major health problem. How will it effect your partnership? Will they need to be bought out? Will if force the sale of the business?
To make a business partnership work, you need clear roles and guidelines established from the outset. This agreement should be in writing and signed by all partners. For every example of a positive and harmonious working partnership, there are two examples of a bitter business breakup, so proceed with caution.
One further warning on business partnerships may be helpful. A partnership can be much like a marriage. The difference though, is that a marriage is intended to be forever, a partnership is not. Business partnerships will end one day. You must have a buy-sell agreement signed by the partners up front.
The buy-sell agreement defines how the value of the partnership will be determined when the partners split up and how quickly the partner leaving will be paid. Don’t neglect this and don’t draft the document yourself. It’s well worth seeking legal help on this one.
The last type of business start up funding I will discuss is angel investors. An angel investor generally invests in businesses that deliver a higher return than they would normally receive from more traditional investments. They will often receive a percentage ownership in the business, in exchange for their investment.
Angel investors can be successful entrepreneurs themselves, who are looking to help others to get their own business off the ground, or they can simply be savvy investors looking for a strong return on their cash.
If you’re fortunate enough to find a quality investor in this economic environment, congratulations! Just make sure you set the terms and conditions upfront, and don’t get taken advantage of. Seek professional help to protect your interests. It is well worth it.
A word to the wise.
Remember, debt is slavery! You are leaving the world of the wage slave. Don’t trade one taskmaster for another. It’s called financial FREEDOM when you aren’t in bondage.
Also, the less debt you have, the lower the risks in starting and operating a small business. Give yourself every chance to succeed. If you have to take debt on, have a specific plan as to how you’ll quickly pay it off. You’ll be glad you did!
And last, whatever business start up funding plan you come up with, seek the advice of others. There is an old saying that says to seek the advice of many and listen to few.
Get quality input from others, especially those who have been there and done it. But always weigh the advice carefully and make sure you understand it. Only if it makes sense should you go forward with it.
You don’t have to learn the hard way. In my experience most won’t remember this piece of advice – so I’m asking you to be the exception, do it right.