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I am in my junior year of undergrad. I have had the same business goals of opening and operating my company since I was eight. I have spent alot of time on researching for the business but I know money plays a major part. My long term business goal is to run a franchise and have multiple businesses under the one company. Recently I thought, why wait until I have all the money to start big. I can start small, and work my way up. My only concern is my finances. I don't have consistent flow of my money and any start up capital as of yet. I was thinking of starting my business online and gradually advance from there, but I am thinking of using my refund check as start up money and income from job as for the ongoing fees. Is that an irrational financing plan?
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It depends on your business model and the size of your overhead. Some web-based business can be up and running with very little cost and minimal overhead.
Do you already have a 12-month emergency fund set aside? If you're thinking of financing this new venture with your own capital and covering monthly bills with your current income, I think it would be prudent to have a substantial EF saved first. The last thing you want is to be out of job with bills pouring in for your new business and no way to pay your own bills too.Rock climber, ultrarunner, and credit expert at Creditnet.com -
Read any book about starting a business and you will find that most businesses like yours start up via personal savings or by borrowing from family and friends. Of course, by borrowing from family and friends you risk losing their friendship so it may not be the best idea. If you start with personal savings, clearly you must have some savings to pull from and the rest of your finances in order. You could try and borrow money from an investor or bank, but you will have to have a flawless business plan supported by realistic financials to have a chance with an investor and will need collateral if you choose the bank route.
From starting my own business I can tell you that it is difficult and, depending on your skill-set, can be very expensive. Even setting up a website can cost a fair amount of money and even more if you want it to grow. My recommendation is to talk with as many people as you can about your potential product to see what response you get. If it seems like everybody would want what you have to offer, start trying to put some of the pieces together such as what type of company you would form, what channel you would operate through(ie: the internet), and writing some type of business plan.
Just because you don't have the financing today doesn't mean you can't save up while you vet the business idea. Always keep in mind who your competitors will be and what products they are releasing. You don't want to put all your savings into your start-up to find that GE or Facebook just released a similar product.Comment
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There are a lot of awesome social lending or micro lending sites out there. If you have a well thought out business plan and proposal, I'm sure you could get someone to lend you some money. Not a lot, but probably enough to get you off teh ground if you're serious. Try googling those terms and see what you get. Lendingclub.com is a good place to look for more info.Comment
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Starting your new enterprise debt free will be a feather in your cap going forward. If at all possible, pursue that strategy. Business debt has a way of snow balling and causing you to make different business decisions than you would have made without the debt. You may even find yourself stuck in a business you would rather close because you must keep servicing the debt.
Starting a business can be a wonderful learning experience. Keep in mind that not all would-be entrepreneurs are successful the first time out, but stay focused and don't be afraid to make changes quickly as needed. If things don't work out the first time around, your second start-up attempt might be the winner.
Good Luck!Comment
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Steve
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fantastic to know that you are thinking of starting your own business. Working for your ownself is far more rewarding than working for others. Regarding the financing thing, it depends on a lot of things. Also you didn't mention the type of business it is. In case it is service based business, your costs will be a lot lower than a manufacturing business. Also you will want to make a lists of various costs in your business and put them under fixed costs and variable costs headings. Once you know the amount of funding you need, you will be required to get funding. First of all, do leverage your contacts if any. People who know you will be more than willing to give you money rather than people who don't.
Also you need to have a very strong business model in place if you are going to attract other VC'sComment
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It's a pretty open ended question really. A business plan is key. Knowing your risk level and potential reward. Is the debt personally secured, secured by the business, or unsecured? Can the risk be shared by having partners?
Debt is not a bad thing if it's balanced by the risk. Don't take big risks for very little reward. Be realistic, organized and always plan ahead.
It took me many years of working before I was ready to start my own business. In the consulting game, you have to accumulate alot of experience so that you have something to sell. Starting it took very little money capital, lots of human capital.
Good luck!Comment
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Keep in mind that you can write off up to $5,000 in startup expenses in the first year.Comment
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