Financing For Small Business – How to Start a Business With or Without Capital
There are only two different ways to start a business – WITH capital and WITHOUT. Yes, even with no external source of capital, an aspiring entrepreneur can start his/her own business. All it takes is a little luck, much effort and a great idea.
Greg Gianforte is a very good example of success that started from scratch. He and his partners started a company called Brightwork Development Inc. back in 1986, and after eight years they were able to sell it for more than $10 million. What was his secret? “Bootstrap it”, he said. Gianforte believes that the best way to launch a company is through bootstrapping. But what is bootstrapping?
Besides cost cutting and saving what meagre money you have, bootstrapping means spending funds on the right places. Without capital from external sources, Gianforte had to start almost from nothing, using only his own money and his expertise in programming.
The first thing Gianforte did was to look for his target niche. Afterwards, he spent most of his time building contacts with different prospects, and “sculpted” his program through feedbacks from potential clients. After the program’s launch, he still implemented bootstrapping by spending money only on the things he deemed useful to the business. He mentioned that bootstrapping is also a way to clear out other things and focus on the customers more.
What started out as a home-based company of around 5 people turned into a large corporation that was bought by McAfee Associates. And Gianforte did not stop there. He founded RightNow Technologies Inc., a software development company worth around $30 million.
Equity investment (or equity contribution) is making an investment in a firm, with an expected payoff in the future substantially above what was initially invested. This is mainly implemented for long-term ROI (Return On Investment). Funds invested in the form of equity can only be returned to the investor through selling or liquidation of the invested firm.
Greg Gianforte used equity investment to make himself a millionaire. He started a company from almost nothing and over time, he turned it into a multi-million dollar corporation which, when sold, provided him enough money to retire at the age of thirty-three.
Looking for capital?
There are other ways on how to get the necessary funds for a start-up business. If you find that bootstrapping will be a long shot for you, looking for the following sources of capital may be the next best step.
This can come from you personal savings, “blood money” (funds coming from friends and family), or even inheritance.
Government grants may be hard to acquire, but it may be the best source of capital, particularly when it comes to green businesses.
This type of loan may come from people or banks or other organizations. They are further divided into two subcategories, which are:
- Long-term loans or the type that banks normally offer – Both parties agree on how the loan would be paid back. It is a more secure loan with signed contracts.
- Short-term loans or the type commonly provided by people on a more personal basis – Sometimes a simple “I O U” note is all that holds the agreement between you and the lender.
Businesses fail because of a number of things. It should be noted that any businessperson must know how to deal with these matters. For those who are just starting up, here are the five most common ways businesses fail, and some tips on how to avoid them.
Losing customers – A business slows down to a stop if there is no one to use its products and/or services. Why is the business losing customers? Understanding your customers is very important in every business. Determine what they like and how they want it to be. Then, modify your products appropriately.
Competition – There will come a time when other companies providing the same products and services you are offering emerge. The only difference is that theirs are potentially better. This is where the competition starts. There are a lot of strategies implemented by different businesses in order to get to the top, but the most important thing is to do your homework and research on ways on how to make your brand better than others.
Obsolescence – Another error of some companies is being stuck with what they have been using since the beginning. Nowadays, technology evolves faster and faster that a program that is considered to be “state of the art” today might turn obsolete in the next few years. Always consider looking for better resources and tools to aid you in your business.
Unforeseen disasters – A steadily growing business might suddenly fall because of unexpected events. Be it a sudden earthquake that destroys the office or a laid off employee bent on revenge, things like these could one day be lead to the demise of any company. That is where risk management comes in. Preparing for anything is the key. You simply cannot rule off the possibility of losing your livelihood.
Bankruptcy – This could perhaps be the worst thing that can happen to any business. Declaring bankruptcy means admitting that there is no money left to fund the business and no money is coming in anymore. That is why securing an alternate source of funds is very important. By having that “extra” resource saved just for emergency situations, you can be assured that there is always a “Plan B”.
About the Author: Elston Marcelo is an all-around marketing and investment guy. In the morning, he works as a marketing consultant for Business Aid Centre, a small business grants and loans assistance provider for government grants and business loans for qualified individuals and companies. In his free time, he writes for blogs and shares his knowledge through different blogs on the internet.