Creating a startup business in this digitally-driven age, has become more accessible for those aspiring entrepreneurs. However, that doesn’t mean it’s any easier to make successful.
In fact, a lot of startups can fail within their first year of existence. Only 40% of startups are profitable, with other startups either breaking even or continuously losing money.
Talking of money, funding is an integral part of getting a startup, up and on its feet. It’s also important to have a healthy bank balance that will support a business as it navigates an often turbulent first year.
Startup costs – Funding requirements
Every startup is a little different when it comes to the funding it requires. It’s often influenced by the type of business and the costs that come with that particular business type.
The average costs needed for a startup are typically around $30,000. There are a number of considerations to make when it comes to startup costs. Here are just a few of those costs to plan for when it comes to a new business:
- Office space
- Legal and insurance costs
This isn’t the be-all and end-all of startup costs. Some businesses need to hire professional consultants to better understand the market they’re going into. Others need money to spend on travel and shipping for example.
7 realistic ways to get funding for a startup
There are many ways to secure funding for a startup. Lack of funding is one of the common reasons that can cause problems for new businesses, so here are some helpful ways to raise capital
- Use a slideshow maker for pitching.
Before going down the avenues of securing finance, it’s important to have a quality pitch. A free online slideshow maker can help business owners create a show-stopping pitch that will have investors throwing their cash to get involved.
While that’s the dream, the reality is that many startups rush through the pitch stage and don’t provide the quality data to back up their reasoning for the funds required.
Conduct market research to showcase the need for the product or services being sold to consumers. Outline how the funding will be used to generate returns for those investors or lenders willing to part with their money. With these lenders regularly receiving many business pitches, what makes yours stand out from the crowd
- Network and connect with potential investors.
A willingness to network is important when starting a business. Regardless of whether it’ll become a completely remote startup or a hybrid workforce, connecting with potential investors is key.
There are lots of opportunities where investors can be found both in-person and online.
- Take a look at local networking events taking place that have some relation to business financing.
- Speak to investors on LinkedIn.
- Get in touch with bigger corporations that offer small business funding opportunities.
There are many routes to cover in order to find potential investors that are interested in the business you’re funding. These connections that you build from the beginning could prove to be fruitful further down the line.
The individuals or organizations you’re rubbing shoulders with now are likely to open more doors for business opportunities in the future.
- Explore the funding available through personal relationships.
While it isn’t the most suitable choice for some, there is the option of acquiring funds from personal relationships. This can be from close friends who have an interest in investing, to family members who believe in the dreams you’re formulating into a business.
However, heed caution when it comes to lending money off loved ones. Make sure they’re investing money that they can afford to lose if the startup fails. It may be the dream to have your own business but if it causes friction or damages relationships, look elsewhere for funding.
Even when funding is acquired through personal relationships, treat it as a professional, business transaction. Put a contract in place that helps protect both you and the business while providing clarity to the family relation or friend.
- Approach banks and lenders for small business loans.
One of the typical routes to go down when it comes to startup funding is to approach banks and private lenders. There are many banks that have small business lending in place, as well as lenders in the private sector that are willing to invest.
This is where a great business pitch and portfolio will come in handy. Some banks and lenders want to see results already and others will be happy with a business proposal.
Acquiring a bank loan though can be fortuitous, with loan approval rates for small businesses applying to large banks being 13.8%. This low rate makes business pitches paramount for successful applications.
Explore the market as a whole and don’t be disheartened if the big banks reject your application. There are always alternative lenders out there who are willing to invest.
- Look at crowdfunding.
Crowdfunding has become a popular way of funding a startup in the last several years. Despite it feeling like a new form of investment, it has a rich history that dates back to the 1700s.
For those unfamiliar with crowdfunding, it’s a method of generating interest in a startup. Crowdfunding is used for many reasons but for startups, it helps gather a small or large sum of money from just about anyone.
Those who pledge money may be promised something in return at the creator’s discrepancy. This could be a free product/service or a mention on the website as a thank you.
This funding process cuts out professional investors and there’s no obligation whatsoever to give the money back. There are plenty of crowdfunding platforms worth exploring; Kickstarter, RocketHub, and GoFundMe.
- Secure angel investors.
Angel investors are proof that networking is bounteous when it comes to acquiring finance. With angel investors, they are typically individuals who have a surplus of cash and are willing to invest in upcoming startups. They can work in groups of networks that take in a business proposal for assessment.
Alongside investing, they may be willing to offer guidance and mentoring to those that need it. As an alternative form of investment, it can be harder to acquire and even more challenging to secure funding. However, with the right idea and pitch, an angel investor is what’s needed for the startup’s success.
- Utilize funding from business incubators and accelerators.
For businesses needing a financial option for funding, business incubator and accelerator programs are worthwhile looking into.
These programs are available through a number of organizations. They require a lot more involvement from business owners, with some running for 4-8 months courses. However, they can bestow both funding and an assortment of guidance from experts in the business. It’s also an opportunity to help build relationships and connections with other business owners.
Financial mistakes to avoid as a new business
To avoid becoming one of the many that fail as a startup, there are a few additional pointers that we’ll offer as a parting gift and a well wish to your success. Here are some financial mistakes to avoid as a new business.
Lack of budgeting
A lack of budgeting can be problematic for a business and it’s something that can cause issues personally when it comes to financing. With no budgeting, it’s very easy for the company to overspend. Overspending means the business is eating into profits that may not be available yet.
Spending without a budget in place is a slippery slope that can result in debt and bankruptcy for the business.
Cash flow management
Many businesses express concerns when it comes to cash flow management. Forward AI found that 82% of all businesses fail due to poor cash flow management. It’s not just a startup problem but a problem faced by many companies.
Negotiating quick payment terms, cutting unnecessary spending, and maintaining a cash flow forecast will help to keep the cash flow in the black.
Creating too much credit card debt
Credit card debt is sometimes justified to help spread costs and make big purchases when there’s not enough money in the bank.
However, building up that debt and not paying it off in a timely manner can lead to financial problems.
Neglecting business insurance
Like any insurance, business insurance protects the company’s finances if anything goes wrong. For any startup, having insurance can be a lifesaving decision that pulls it from the brink of failure.
Not covering the company’s back with business insurance is a financial mistake that is to be avoided at all costs.
Explore every avenue available for startup finance
As a startup, there are many opportunities to seek finance for the business. Explore and exhaust every avenue available to secure the funding your business needs. The more funds available, the bigger the window of opportunity the company has to succeed.
Author Bio: Natalie Redman (LinkedIn)
Freelance writer for many clients across multiple industries. Natalie has two years of copywriting experience. Natalie has a wide range of experience copywriting for web pages for businesses across many industries. She’s also an owner of two blog websites and a Youtube content creator.