Launching a startup requires a great deal of commitment, diligence, patience, and of course, money. And while there are a lot of complicated factors that you need to struggle with such as product development and marketing, it can’t be denied that finding the resources you need for the launch is a different challenge entirely.
Searching for the perfect financing plan or provider is also not an easy task, even with the wealth of online resources out there that can assist you in the ordeal.
Fortunately, there is more than one way to finance your business. In fact, more solutions are being developed every year to help beginner entrepreneurs attract investors and leverage their assets for various lending programs.
In this article, we seek to assist you even further by giving you a viable starting point in this journey. It will include the steps that you need to consider to create a solid financial foundation for your startup and beyond.
Structuring Your Plan Effectively
While every business starts with an idea, it is actually launched with a well-structured business plan. The key on how to start a business with a low budget requires you to zoom into your goals, determine priorities, come up with a plan to develop the product or service, a marketing strategy, and of course, figure out fulfillment.
This will also help you come up with a data-backed estimate on the amount that you’re going to need in order to fuel up your launch and ensure its success.
Don’t worry, we are going to talk about business plans in more detail in a bit, so just keep on reading.
Filling in the Gaps
There are other factors that you should consider as well. We prioritize researching the necessary requirements, documentation, and licenses that we need to obtain legitimacy.
This will also point out any element that we’ve missed including “hidden charges” that can be relatively easy to overlook.
Making 3+ Different Scenarios
Here’s another factor that most beginner entrepreneurs fail to consider in their business planning: risk management.
This is the reason why we highly recommend coming up with more than three different business scenarios. A business scenario is a technique that business experts perform in order to determine how a business should respond to various problems.
It includes the problem, business description (such as your industry, target demographic, and business environment), the people involved in resolving the issue (this is critical if you have employees), and the ideal outcome.
We usually formulate our scenarios by working backward. We start with the ideal outcome, the necessary steps in order to achieve that outcome, and any alternatives that we can also consider along the way.
It will also help to consider the worst-case scenario, just in case we have failed to consider other variables in the process (which is usually the case in real life).
Business experts also recommend that scenarios must be SMART. They should be:
S – Specific. There must be a clear problem that you seek to deal with.
M – Measurable. There are points that you can consider as a metric for success.
A – Actionable. There must be steps that the members of the organization can follow in dealing with the issue.
R – Realistic. All of the actionable steps must be realistic especially when it comes to cost and time constraints.
T – Time-bound. Finally, the problem must have an expiration date, that after which, can constitute failure if not met.
Understanding Financial Reports
Most of the time, the metric of whether a scenario is successful or not is based on the financial outcome. Were you able to minimize loss as much as possible? Surprisingly, the answer to that question is not always apparent.
The best way to determine the status of your business is through your financial reports. Understanding what your financial reports show is essential for your business to thrive and survive.
Here are three reports that you should be familiar with before the launch of your startup:
- The Balance Sheet. This is the record that provides you an overview of your business’ total assets, liabilities, and shareholders’ equities (if you have multiple investors) in a specific amount of time (usually within a certain accounting period).
- The Income Statement. Also known as a Profit and Loss Statement or Statement of Operations, the Income Statement provides you an overview of both the income and expenses of your business to help determine the profitability of your business within a specific amount of time.
- The Cash Flow Statement. Finally, there’s the Cash Flow Statement that provides you an overview of the inflow and outflow of cash in your business. Unlike the Balance Sheet and Income Statement that tracks other forms of assets, what sets this record apart is that it only details cash activity.
This statement is usually divided into three sections: financing, investments, and operations to better determine which section generates the most cash income.
Aside from gauging your business’ current status, these financial statements are also crucial when inviting new investors, loan applications, and budgeting.
Presenting Your Financials in Your Business Plan
To further bolster your business plan and your financial statements, we recommend highlighting the following elements:
- Your Sales Forecast. This is the projection of your sales within a given time period, preferably backed-up with the data in the aforementioned financial statements above.
- Startup Costs. Your business plan must also indicate a list of all the expenses that you expect for the launch. This involves any capital needed for your product research and development, equipment needed, utilities, as well as the expenses concerning the promotion of your business including advertising, PR, integration of all-in-one marketing platforms, etc.
- Salaries and Contracts. While most businesses are launched with the owner being the only employee, there are some that plan to start with an entire team. If this includes the business you have in mind, then make sure to include the salaries and contracts within your plan.
- Running Costs. Finally, don’t just stop with the statements projecting your expenses during the launch. It’s wise to create a projection of the running costs as well. These are the costs you expect to have once your business has attained leverage and the initial launch boom has passed.
Finding Financing Opportunities
Lastly, after all the documentation we’ve covered, we believe that you are finally ready to explore your financing options. If you’ve followed our guide so far, then you probably have a solid business plan by now with all the financial statements to back it up.
This definitely improves your chances of getting approved by financial assistance programs, grants, and lending institutions.
Speaking of which, here are the top financing opportunities that you should consider to get the money you need for the launch:
Grants and Financial Programs
There are numerous grants and financial assistance programs being offered by both government and non-government offices. The United States Small Business Administration website is a good place to start exploring such programs.
There are various business loans that you can apply for. You can start by asking your bank since most of them offer special plans and rates for their loyal clients. However, there are both storefront and online lenders that you can check out too.
Secured vs. Unsecured Loans
Business loans can mainly be categorized between secured and unsecured loans. Secured loans will require you to present an asset as a deposit. This will ensure the institution that they have something they could cash-in just in case you fail to repay your debt.
The main benefit of a secured loan is the higher amount you can get approved for combined with a potentially lower interest rate.
On the other hand, unsecured loans do not require any form of deposit. However, you can expect the application process to be a little harder, the credit line smaller, and the interest rate higher.
Lastly, you can also invite investors to make your business happen. We recommend starting your investor search with your family and friends. Is there anyone within your existing network who might be interested in your business idea?
You can also consider looking for an angel investor. They are industry leaders willing to help new entrepreneurs with really promising business ideas. They are very selective, though, so make sure to practice your pitch to a tee.
By the way, the options we have featured above are not the only ones you should consider. As mentioned, there are numerous ways to get businesses financed, with more options being developed each year. Other options include incubators, accelerators, crowdfunding, and equity financing.
To Sum Up
Launching a new business can be daunting, especially if you’re not ready for it. That’s why formulating a detailed business plan from the get-go is essential to achieve success.
A big part of your business plan involves financial data. This includes three main financial statements: the Balance Sheet, the Income Statement, and Cash Flow Statement.
Understanding what these financial statements are and how to prepare them will prove helpful not only in getting your launch financed but in running your business later on as well.
There are numerous financing opportunities out there, but the three most popular options are grants, loans, and investors.