Funding your business

“You have to spend money to make money” is something that I heard from the managers and owners in my earliest jobs. What I never asked at the time, but found out the hard way when I wanted to start my own business is: Where do you get that first bit of money to spend so you can make more?

Maybe you need some seed capital to buy some inventory or perhaps you need to pay for some advertising space.

Here are some ways for you to raise capital for your business:

1. Fund it yourself with savings. This is a common way to fund your business and you tend to watch these dollars closely. However, there’s a lot of risk, too, since you’re spending the very cushion you’ll need to rely on if you fail. If you do this, you might want to put your savings into 2 tiers – one tier you can borrow against and another tier that you refuse to touch, “just in case”.
2. Fund it with loans. This in itself is an entire spectrum. Some loans, like a small business loan or a renegotiated mortgage can give you some money without necessarily stinging you with high interest or massive payments. Credit cards are an all-too-common way to fund a business and the occasional success story of a credit-card-funded business does a disservice to the entrepreneurial community. Loans might be necessary but a cautious course is needed.
3. Fund it with grants. Grants can be a nice way to get money for your business but it isn’t always easy to get them. There’s lots of competition and you sometimes can spend an inordinate amount of time complying with grant requirements. I would suggest that this is a good bonus that you can use to catapult your business to the next level but shouldn’t be your primary capital injection model.
4. Fund it with revenue. This one makes sense once you start earning revenue, and I hope that you always set aside some money for operations, some money for a cushion, and some money to invest in the business. But if you don’t have a lot of revenue, or if you don’t have any at all, obviously this may not be a choice. (However, you might consider revisiting your business model to start smaller, just to get some cash flow. Then grow from there).
5. Fund it with investors. Investors represent a great way to fund the business because they can provide capital plus their expertise. However, there are many challenges including: You don’t want to fund it with family and friends because that is a recipe for disastrous relationships. You want to be careful how vocal your investors get because you can spend all your time worrying about them rather than running your business. And, you need to watch what you commit to because you might end up giving up too much equity or getting saddled with bond payments you can’t afford.

There are other ways to fund business growth and I found some interesting ones here. These aren’t all perfect ideas for everyone – you’ll need to make sure they match your business – but you might find one that gives you the money you need to make more money!

Jessica Routier, IAC-EZ