When beginning a start-up, it is essential to create a financing concept at an early stage. Depending on the type of company, the self-employed entrepreneur must consider some key factors, including: Is purchasing new equipment necessary? Which is the better option for company vehicles, leased or financed? How much money should be invested in marketing strategies? When is the first revenue expected? Below are aspects that an entrepreneur should consider to help their start-up prosper.
How much capital is needed?
Before starting a company, it is critical to understand the financing amount needed to undertake the venture. In many cases, founders underestimate their needs and set the fundraising goal too low. This mistake can destroy a start-up and negatively affect the entrepreneur’s livelihood. Few small business founders can generate enough income in the first few months to sustain their operations and earn a profit. It often takes at least six months or longer before the company makes a profit. Without reason, then, it is not that most start-ups fail within the first three years of their inception. Below are a few ways a person can finance their start-up:
Bank Loans
Your home bank is often the option to consider when financing a start-up. The on-site advisor can provide information about the maximum loan amount available, the interest rate, and what repayment is expected to be incurred. Often, self-employed people, who cannot record regular income, cannot avoid depositing collateral since they pose a higher risk of defaulting to banks.
Start-up Grants
Start-up funding is the basis of income for many self-employed entrepreneurs. A start-up grant is designed to end unemployment and enable people to start a new business. The application must be submitted to the Employment Agency before taking up self-employment to receive the start-up grant. The person reviewing the loan will need a business plan and proof of the applicant’s qualifications. In principle, the grant reviewer must be persuaded of the start-up idea to grant a license. Because the start-up grant will not be awarded to all applicants, the reviewers decide on approvals on a case-by-case basis. Even if a person meets all the criteria, there is no guarantee that government support will be paid. Although the start-up grant is a financing option, it is not guaranteed.
Crowd Finance
Crowdfunding/lending occurs when many investors, also known as “the crowd,” contribute funds, not just a single investor who takes on the risk involved in a Start-up venture. In crowdfunding, the risk is distributed across each investor. This funding principle is as simple as it is ingenious: if everyone contributes a small part, a whole emerges. These projects are usually presented via the internet, where the founder presents their start-up idea, the required amount of funding, and the period until when they need the money. If an investor is impressed by the idea, they can contribute financially to the project, but the financier is not actively integrated into the start-up through his share.
Crowdfunding is divided into four different models:
- In classical crowdfunding, the investor receives consideration in the form of a present. In most cases, this is the product that needs to be financed.
- The lender acts as a micro-investor in crowd investing and is financially involved in the project.
- Non-profit organizations frequently use crowdfunding by donation. The lender receives no consideration for his financial commitment, but some companies create a thank you certificate or send a small thank-you gift.
- Crowdlending is an alternative to a traditional bank loan. The founder receives a loan from the crowd with a fixed term and an agreed interest.
Start-up Angels and Venture Capitalists
In this form of funding, the founder looks explicitly for one or more investors for his start-up idea. A typical example for start-ups is the organization “Start-up Angels.” Private persons with capital and start-up knowledge give the founder money and support them with their skills. Being self-employed is beneficial from a financial standpoint and from the experience and start-up relations they have with their investor. In Start-up Angels, the donors usually participate with sums of $50,000 and can extend into millions.
Conclusion
It is not possible to finance self-employment through a start-up only with subsidies. Grants and profile-raising loans are usually a fraction of the overall funding. One reason is that many grant programs fix the amount of the grant. If someone wants to begin a start-up, they need to prepare the project and aspire to take risks on their own. If a start-up concept does not convince an investor, it will be almost impossible to persuade a government agency to finance it.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
