When starting or growing your small business, even if you have some capital saved to put into the business, chances are you won’t have enough to cover all of the costs. If you have no means to provide the money to operate or grow, you will have to look at other financing means.
Before you pursue financing, you must make sure you have a comprehensive and well-written business plan. Most think you only need a business plan for a startup business; however, you should be updating your business plan every year to project growth and use data from the previous year to make those projections. Here are what should be included in your business plan:
- Executive Summary: The executive summary introduces your company to the reader and includes your mission statement and what your business is about.
- Company Description: The company description is a deeper dive into what the company will do, its goals, and the expected customer type.
- Market Analysis: The market analysis is a detailed analysis of the market to which your business belongs.
- Competitive Analysis: The competitive analysis is the comparison to your indirect and direct competitors.
- Management and Organization: Management and organization is the structure of your management team and the entire organization.
- Products and Services: This will be a thorough description and breakdown of the products or services your company will offer.
- Marketing Plan: Your marketing plan will be how you intend to market the business and the costs.
- Sales Strategy: The sales strategy will include how you plan to offer your product and how the sales team will go forward. It will also include projected sales targets.
- Financial Projections: The financial projections should cover at least six months, if not a year or month by month, financial breakdowns, and analysis.
Now that you have a solid business plan, here are four types of financing you can obtain for your small business.
Take it to the Bank
The most obvious means of financing your small business is to go to a banking institution and obtain a loan. The bank will expect to see a business plan, business credit scores, personal credit scores, financial statements, or any other documents that will help them decide to give you a loan. The bank is looking for the amount of risk there will be if they grant you a loan.
Friends or Family
If you have friends or family that believe in your business, they will often help you finance your business with no strings attached. While they will still expect to be paid back, they often want no stake in the business and help you succeed. Be careful when borrowing from friends and family because if you have difficulty paying them back, it can cause a rift, but often this is a great way to borrow for your business because it will most likely be interest-free.
Outside Investors
You can look for outside investors who have expressed a desire to invest in small business startups or growing. These investors will become stakeholders and expect a return on their investment and often limit when they expect to see some return on their investment. In some cases, investors will expect a seat at the table when it comes to business decisions.
This involvement can be a blessing or a curse depending on the investor. Some have a vast amount of business experience, and their involvement and ideas could help your business grow and thrive. Others can be a challenge to deal with, so choose your investors carefully. Base your choice of investors on reputation and research them thoroughly if they have an investment track record.
Crowdsourcing
Crowdsourcing is a fairly new financing source for businesses or projects. While you will still have to give the investors a return on their investment, you can, in many cases, gain quick and total financing for your business if it is a great idea with a solid business plan. If you are great at selling your ideas and getting others excited, crowdsourcing would be the perfect financing pursuit for you and your business.
Conclusion
Financing is a part of any small business, whether it is a startup or a business operating for some time that is growing. If you have a great business plan and have made sure you are personally financially strong, you should have no problem obtaining financing via one of these four sources.
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