Before the Funding Begins: Preparing the Small Business

Obtaining funding as a new or small business requires knowledge of traditional funding options, and it also requires some important preparation so as to secure that funding without the hassle of denials. A small business owner often doesn’t have the reputation of an established or large business and can’t rely upon established connections to secure funding.

 

Creating the Business Plan

Small business funding may be obtained using a variety of methods, but one of the universally accepted methods for improving the chances someone might have for being approved is the basic business plan. Whether a small business owner seeks funding from investors or whether an application is made to a traditional bank, a business plan showcases all the necessary elements required for a lender to make a decision.

 

A well-crafted business plan should showcase the promise of success from that business after financing is obtained. Offering an investor the chance to earn a swift return on his money or a sizeable profit will improve chances for approval of funding. It’s also important to showcase the healthy potential for growth within the industry in which the business will reside, and to convince investors why a particular product or service will offer a competitive edge over other businesses.

 

Creating the Budget

Before a single dollar is spent on a new venture, effort must be made to hammer out the details of the budget. Many expenses in a new budget may only be estimated, but defining each element of the budget before funding comes through ensures that no money is wasted during the vital first few months of a new business’s operations.

 

Running out of money or engaging in reckless spending is the fastest way to trouble in business, especially for individuals who don’t have a reasonable cushion for failure and have invested everything they own in their entrepreneurial dream.

 

Large elements of a small business budget may include:

  1. Startup costs
  2. Operational costs
  3. Development costs
  4. Expansion costs
  5. Projected costs

Within each of these larger ideas, explicit definitions of each type of cost are necessary. Although some elements of the budget might only be estimated, such as the expansion and projected costs, it’s vital that a small or new business owner is aware of every potential cost well ahead of when funds would be required.

 

Deciding on Funding Type

Walking into a bank and filling out a small business loan application isn’t the only way to secure funding for a new venture. Understanding each type of funding and the benefits contained within each will offer a new business owner the best chance for obtaining startup funds. Not only are there a number of traditional options through standard bank applications, but venture capital groups, government grants, and short-term loans all offer different opportunities to gain funding.

 

Some of the inherent differences in funding types include the time required for approval, and the least expensive options will always take more time. A government grant may take quite a while for an approval or denial to come through while something like a short-term loan could be obtained in just a few hours. To determine which type of financing would serve a new business best, listing the pros and cons of each type of funding, such as the length of time for approval, expected interest rates (for loan options), and the ease of application is a good exercise.

 

Individuals who are completely new to the world of small business finance must carefully consider these preparatory steps to funding. A smart business plan, full budget, and an intelligent choice on funding offer a fledgling business the best chance to survive in the cutthroat world of entrepreneurial startups.

 

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