image credit: quiet dear

Today I’ll be talking about a VERY relevant topic in the world today— money. This may be the hardest time to get your financial ducks in a row, but I do feel compelled to share some important tools that have worked in the past. Keep in mind that the stakes are getting higher, so you may need to apply one or more of the below tactics to really lay a secure foundation for your business. Here we go!

When choosing the right funding path to embark on, it’s so important for you to think about the type of business you’re attempting. I’ve outlined a few key paths to choose from below, both with positive and negative attributes:

1. Bootstrapping: Starting a business without external help/capital [source].

Obviously, there are some positive aspects to bootstrapping:

• You maintain complete financial and operational control over your business.
• You have no equity-holders to pay off if the company eventually hits it big.
• If you are able to use savings, you won’t have monthly payments to add to your business’ expenses.

And, some negative:

• If the business fails, you’re very likely to face a lot of personal debt.
• Depending on the source of your personal capital, you may end up paying a high interest rate [if you use a credit card], or you may miss out on earning interest [if you use savings].
• Typically, this form of funding limits the amount of money you have for strategic purposes and the rate of growth of your business can be significantly slowed down as it starves for cash.

2. Debt Financing: Going the loan route.

Positives:

• You don’t have to give up equity, proceeds or control in order to get funded.
• You build a powerful relationship with your banker that can open up additional forms of debt financing you may need down the road.

Negatives:

• Bank loans typically go to existing small businesses with 2 years of history and credit.
• You must pay interest, and if you don’t keep up with your loan payments, you could find yourself in a tough spot with the bank.
• You may be required to provide personal collateral, such as your home, to obtain the loan.
• This is not the best market to seek a loan and you may face resistance from banks.

3. Angel Investors: Individuals who invest in a company early on in exchange for equity and a “voice” in the company.

Positives:

• Angels invest more than money — they provide mentoring and contacts.
• Angels are patient about their investment.
• There are no monthly payments with this type of financing – angels make their money when you achieve your exit strategy.

Negatives:

• Angels are difficult to find.
• Angels deserve regular and thorough reporting, which can take up valuable time.
• You are giving up equity in your company.

Again, these are just a few options available to you. Grants, venture capitalists and factoring are big portions of funding as well and are worth doing a bit of reading to find what’s right for you.

The most important business advice I’ve ever received when it comes to money [and life!] is DON’T live beyond your means. If an office space isn’t a necessity, work from your home. If you can re-use materials for your craft, by all means — re-use! Don’t underestimate the power of creativity in this stage of your business. Often the foundation you set in the beginning will make or break your future business!