Small Business Start Up Financing:
Financing Your Small
Business On A Shoestring
Starting a
business does not always require a large initial financial investment.
Careful and creative management of currently available funds can go a long
way towards providing needed capital. A disciplined person possesses the
potential to become a financially successful entrepreneur. The key to
financing your business with little initial cash outlay is to become your
own banker.
Realistically,
you should have some amount set aside for start-up expenses. For example,
let's say that you have $2,500 to invest in starting your business.
Calculate upcoming major expense items and set aside a certain amount for
each one. Think of that item as having its own line account. You may want
to go as far as to set the money aside in a specific envelope. Plan to use
these funds for the designated purpose only. The amount may not be enough
to cover the full cost, but it is a start. You must now determine how you
will raise the rest of the required amount.
Perhaps, a
major start-up expense is a piece of equipment that costs $3,000. You have
set aside $1,000 for this outlay in your calculations. What are possible
ways to acquire this item? Maybe you can purchase the equipment with a
$1,000 deposit and work out a payment plan. Or, possibly you can negotiate
a lease agreement. The goal is to initially not spend more than you have
set aside, with the plan to repay the balance of this debt from future
income.
As your
allocation of initial funds for expenditures method becomes more
sophisticated, begin to add accounts. Set aside envelopes for major future
expenses. As the business makes money, add incremental amounts to the
envelopes. Slowly, you will approach having saved the full amount needed
to cover those expenses. Continue to tackle upcoming costs in this manner.
When the
business receives income, it must be allocated to your outstanding
expenses. Add to those envelopes and do not renege on these allocations.
This is where discipline comes into play. When you put money into a future
expense envelope, those funds become dedicated to that item. You've become
your own banker by setting up individual savings accounts for each
expense.
You are now
also in the position of taking on a bank's function of lending money. If
you are saving for a large future upcoming expense, you can borrow from
that account to cover a more immediate expense. Because you are borrowing
from yourself, you save the added expense of finance fees or interest.
Again, it requires discipline to return borrowed funds to their designated
purpose.
On the other
side of the coin, you must develop and stick to a strict payment plan for
all outstanding debt. This applies to both paying off creditors as well as
replacing money borrowed from an envelope. When you systematically work at
it, debt will eventually disappear.
I once began a
business with $12,000 outstanding debt in addition to my start-up
expenses. An arrangement was made with the creditor to pay off the debt in
installments of $500 a month for two years. With careful planning and
sacrifice, I was able to meet this commitment as well as grow my business
at the same time. The secret is to control your debt, not let it control
you.
