Six Tips For Financing A New Business With Limited Capital

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For those who want to start a new business, startup capital is often a big obstacle. Depending on why you want to start a business — for example, if you're leaving a job — you may not necessarily have the money you need to get it off the ground. In that case, you'll have to find creative ways to make your ideas a reality. Fortunately, there are plenty of ways to craft smart business budgets and secure funding, and they can help you get started without a ton of capital.

We asked members of the Forbes Finance Council for some ideas on how a future small business owner can get the cash they need to start a business. Consider these tips if you're looking to finance a new venture without breaking the bank. 



1. Take Time To Make A Financial Plan

Make a budget and projection based on available credit and funds. A lack of capital is not a barrier to entry, necessarily; it normally just limits the speed at which you can grow the business. I have witnessed startup businesses finance through personal credit card debt, partial pension distribution or a family loan. What makes the debt potentially disastrous is the lack of a plan. With time and sweat equity, anything is possible. - Perry D'AlessioD'Alessio Tocci & Pell, LLP

2. Scale Slowly

In general, I always recommend building any newer business from small to big and at a steady pace. Don’t create too many fixed expenses that don’t have a direct return on your investment (e.g., high rents and unnecessary inventory). If you're a homeowner, you can try to tap into your home's equity if the business model is something you're well versed in and you're confident the business will succeed. - Jared WeitzUnited Capital Source Inc.

3. Create A Cash-Based Budget

With a startup business, it is important to know your upside and downside and also make sure that you have the capital to keep it going, as few startup small businesses make money for a while (especially if it will have to replace your paycheck). So the first thing I suggest everyone does (although it's not fun) is to create a cash-based budget and projection. As many Americans have their money in 401(k)s or IRAs, I find more and more that many are looking to use their IRAs as a funding source (borrowing) or to own the new venture in a newly formed and funded “self-directed IRA.” However, I very much warn against this, as owning a business that you manage could run afoul of prohibited action or self-dealing rules that could disqualify your IRA, make it taxable, and be subject to an IRA penalty or even IRS penalties. - Scott BishopSTA Wealth Management


4. Try DIY Crowdfunding

Crowdfunding can be a great tool for selling a product and funding a new business. If your business plan allows for it, find your clients before you go into business for yourself and have them prepay for your future product or service. This method will also show you if you indeed have "product/market fit." - Christian KameirSustany Capital

5. Use Sales To Fund the Business

Use money from sales of your service or product to fund the business startup. If you need funding first to create the product, offer a discount for purchasing pre-orders. Selling the product or service before it's completed and ready to deliver to the customer is a great strategy for building exactly what your market wants. You can provide a presale discount in exchange for suggestions in the development of the service or product. - David GassAnderson Business Advisors, LLC

6. Set Your Limit Before You Start

Treat it like an external investment: Commit to the amount you are able to invest and stick to it. As a new business owner, it can feel tempting to think one more financial boost will solve all problems, but it is rarely true. Business building is hard, and there is no shame in stopping yourself from putting good money behind a bad investment. So, set your limit before you start. - Atish DavdaEquityZen

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?


https://www.forbes.com/sites/forbesfinancecouncil/2018/09/05/six-tips-for-financing-a-new-business-with-limited-capital/#3aea3ef51906

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