For most entrepreneurs, they’ll tell you their biggest challenge getting their startup off the ground is financing.
In fact, surveys show that nearly two-thirds of start-ups face financial challenges. There are ways to overcome this large hurdle.
Let’s look at three common startup financing challenges and how to beat them.
#1: Start at the Right Time
For many people looking to begin a new business, they simply lack the personal capital to do it. They may not have any savings, and they may still be paying off student debt.
This is a common challenge for startups.
Most entrepreneurs need to start off with a little seed capital to pay for things initially. It can take many years for a business to make a product, so you want to make sure you are financially stable enough to begin it.
Right off the bat you need seed money to pay for staff, rent, leasing equipment, and marketing. This takes a bit of personal capital.
Often people who are middle-aged or older have enough savings to draw on in the early stages of their startup.
It’s a good idea to have a bit of a nest egg as a personal cushion and for emergency funding no matter your age.
#2: Network, A Lot
Another common challenge is not networking enough.
The best (and often easiest) way to get funding for your startup is through networking.
The challenge arises when you either don’t have enough time to network, or you don’t have enough contacts.
Some people don’t have a large network of business connections or friends poised to offer financing.
You can overcome this challenge by getting in touch with old friends and acquaintances and joining appropriate local business organizations to start networking.
Well-placed connections are often key when you’re on the lookout for investors.
If you fall into this category, it may take longer for your startup to garner the attention of the right people, but if you stick with it and do your time networking, you’ll soon find that the tide is turning.
#3: Pick the Right Investors
Another challenge is finding the right financing mix. With many options available to you, you want to choose the options where you are most likely to be successful.
You might also want to work with more than one source in case one falls through.
Your options include:
- Bootstrapping: this means using your own savings for financing your startup or money from friends and family.
- Credits: you can do this in a pinch, but it’s not usually a good idea as you are completely liable if something happens to your startup.
- Bank loans such as one through the Small Business Administration. To get a loan like this, you will have to prove your creditworthiness.
- Angel investors: this can be a flexible option for you as opposed to a big venture capital firm. Angel investors invest in exchange for a portion of your business, meaning they will have a say in how it’s run.
- Venture capitalists: similar to angel investors, these folks usually invest big dollar amounts in the millions. They will often also provide you guidance if your startup is big enough to warrant the investment.
- Crowdfunding: these campaigns require a time investment on your part and plenty of online marketing. But you have the option of reaching a very large group of potential investors while generating buzz for your startup in the process.
Whichever way you choose to go, and you choose multiple options, be sure to write a thorough business plan so all of your investors can see that their money is well-invested.
While financing is one of the most common challenges that startups face, you can overcome this obstacle, get funding, and move your startup into the growth phase.
Whichever one of the challenges you face here, you want to act quickly to remedy the situation. Speak to your investors. Consult a financial advisor and see where you went astray.
Do what you can to fix your financial issues, but don’t be afraid to ask for help. And, don’t let your financial burdens drag out.
Take advantage of those who offer help, and you’ll soon find yourself overcoming your financing challenges.
Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.