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LeslieBarber
Level 6

Financing 101: Our Guide for Getting Started

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Recently, we've been diving deep into topics like cash flow, funding your business and invoicing — all things that are often top of mind for those of us who are small business owners or self-employed professionals. After all, if you aren't managing your cash properly or getting paid... how will you know when your business is working?

 

In an effort to decode the financing game, we've rounded up stories and tips from our members here that you can use as a starting point when exploring how to fund your business when you're just starting out.

 

Let's dive in!

 

1. Understand your needs

There are costs associated with starting up a new business (and oh boy, are they real). Before you pursue one (or many) avenues for securing financing or raising money, you need to know exactly what you need today and what you'll need in the future.

 

Deconstruct your needs by answering a few questions about what you require and, most importantly, *why* you need it. Your options will vary depending on your main goal and how you envision your business growing over time.

 

You'll want to consider...

 

  • The stage of your company. Are you a startup, or have you been around for awhile?
  • The size of the market you're targeting. Are you shooting for the stars and tackling a billion-dollar industry, or is your scope much smaller?
  • The potential of your offering. Does your product or service address a need in a particular market?
  • How fast you want to grow. Do you want to scale your business lightning fast, or grow at a slower pace?
  • How much money you need. This is the big one! How much will you need to scale? When will you reach profitability? (We've got some tools that will help you with this in part two below.)
  • What you want to use the money for. This is an opportunity to dream big, but also to think in practical terms. How much do you absolutely *need* in order to start your business?

 

2. Prepare, prepare, prepare

There is a consensus here among QB Community members that doing your homework upfront will make navigating your options a whole lot easier. When it's time to get your ducks in a row, check these three things off your list:

 

  • Estimate the costs associated with starting up. What do you absolutely *need* to have in place when you're starting your business? Is manufacturing the first version of your product the #1 priority? Or is locking down a location crucial to your business?
  • Create a profit and loss statement for your first year. Estimate revenue by doing a profit and loss statement and monthly cash flow analysis that covers at least your first year in business. Then, use this information to project how the next year or following years will look. You can also use this statement to get a better understanding for when you'll need outside financing. Need help with creating a profit and loss statement? Check out this free cash flow statement template and guide.
  • Know exactly when you'll break even. Once you've done your cash flow analysis, you'll know when you will break even and how much money you need to sustain your business before you get to that point.

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3. Explore the options that fit *your* business goals

Knowing your main goal will be the key piece that makes decision making a whole lot easier when you're exploring the many, many options out there for financing your business. The #1 tip that folks here recommend is narrowing your focus and eliminating options that are irrelevant to your core business goals. Stick to what is the most natural fit for *you* and your business. 

 

Are you a budding fashionista hoping to take your designs to market? Then it might be more appropriate for you to enter a competition than, say, apply for a government grant. Doing your homework in the steps above will help you avoid wasting time on funding sources that might be irrelevant or poorly matched to your goals.

 

Depending on whether you are starting from scratch or hoping to tackle high-growth during your early years in business, there are several funding options to consider. You can find a full list of options here (including many that are specifically designed for women entrepreneurs!), and we've rounded up a few of our favorites below.

 

  • Friends and Family. This option can be a bit controversial, but if you're in the earliest stages of launching a new business, it might make sense to take out a loan from a friend or family member. Whatever you choose to do, our members here agree on this: everything should be recorded in writing with a legal document.
  • Government Small Business Grants. The U.S. federal government offers some grants to small business owners, but often they are designated for very specific purposes like research or for creating a new business in a rural area. If you think your business might fall into one of the categories that qualifies after you answered the questions above, head to Grants.gov and have a look at what's available.
  • Competitions. If you're game for getting on stage and presenting your ideas, entering a small business competition might be the way to go! Participating in startup competitions that provide anything from seed funding to mentorship opportunities can force you to think critically about every aspect of your business — and they help you practice perfecting your pitch! Precious Williams did just that and she ended up securing $150,000 to start her lingerie company.
  • Crowdfunding. Julie Gordon White isn't the only one who recommends crowdfunding as a way to fund your business when you're just starting out. Many folks here have used sites like Kickstarter or Indiegogo to collect small contributions from a large number of people. One thing to keep in mind is that crowdfunding often requires that you tell a compelling story online if you want to reach as many people as possible. Having a dynamic video, a story with an emotional angle or a viral marketing campaign will go along way in getting you there. 
  • Loans. As a small business owner, you may be able to borrow money for a period of time to help you get things off the ground or take your business to the next level. To find out which loans are best for your needs, you can use this handy tool that displays lenders based on your credit score, the amount you want to borrow, how long you've been in business, how long you've been profitable and if you have outstanding invoices.
  • Equity Financing. Equity financing is a method of financing by which a company issues share of stock and receives money in return. Equity investments can come from friends and family members, angel investors, venture capitalists (VCs), private equity firms or through online public offerings. If you eventually want to scale BIG, this might a wise option to consider.

 

The bottom line when you're on a mission to find financing? Use both patience andpersistence when you're evaluating everything that's out there. And don't give up!

 

So, what's next?


Once you're up and running and you've proven your profitability, you have more options for securing financing. You can take out a loan from your local bank (we love Julie's advice here in our QB Community Cash Flow Hack!), or you can secure a line of credit for a rainy day the way Christina from Farmgirl Flowers did in her business.

 

Whatever your path, 100% of members here agree that bootstrapping your business for as long as you can and keeping your expenses low is the safest way to make sure you're on your way to making money.

 

Now, we want to know from you:

 

What financing options have *you* tried in your business? What worked well, and what did you learn throughout the process?

 

Share your experiences in the comments below, so that together we can create the largest, most valuable collection of financing resources for small business owners everywhere.

 

Can't wait to hear your stories! :-)

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