Over the past few months, a close friend and I have been moonlighting working on a small start-up business. The idea was born over a couple glasses of wine, and rather than just letting it be one of those ideas that never comes to life, we decided to actually pursue it.
So, right now, we’re in the midst of new things we previously knew nothing about: incorporating as a company, contracts, business plans, and most importantly, financing.
The scariest part about starting your own business is that you have to spend money to make money. However, in the case of a start-up, you never know whether or not your idea will take off and you will actually make that money back. That’s just the risk of entrepreneurship. You can’t get around it—you need money to start a business.
There are a couple of options for how you can get that money, depending on how much you need:
- You can fund it yourself. If you’ve got healthy savings and are willing to put that money up toward your new venture, it’s probably the easiest way to get things done.
- Seed funding. Seed funding basically means someone gives you money for your business as a gift. There’s no expected repayment. (Parents generally come into play here.)
- Equity investors. This is when you get people to invest in your company in exchange for partial ownership. Say, 5%. They won’t get anything in return immediately, but eventually, if things take off, you may pay them dividends or, if you sell your company they reap a portion of those proceeds. If you really make it big someday and have an IPO (initial public offering), they could stand to make a lot off of a relatively small investment.
- Borrow from a credit union or relatives. Check at your local credit union about small-business loans. If the credit union does offer small-biz loans, the professionals there will be eager to help and can help you from your first steps of starting a business such as helping you develop your business plan.
Ultimately, we decided to self-fund our business. The initial outlays of cash are not so much that we can’t pay for it ourselves. It’s the easiest way to pay for our start-up, and it also involves the least amount of people and work on our part. We’ll have to see how it all plays out though—we may be looking for investors (or even a loan) down the road…