Obtain Startup Capital for Your Business
The success of a business idea largely depends on the financial planning behind it, says Joseph Parrino, a longtime women's clothing store owner who decided to branch out into the housing rehab business.
“I knew from experience that without the proper backing, I wasn't going to be able to make a go of the new enterprise,” Parrino says. “What I didn't know was how tough it would be to find the capital. I thought since I had a proven track record in business that becoming an independent contractor would not be a problem.”
Instead, Parrino found multiple roadblocks. Even banks he had done business with for years were not sold on his idea. “I consider myself a good risk for investors or lenders, but because my new business was such a departure from my professional background, even people who knew me were hesitant to commit funds,” says Parrino. “Mostly, they wanted to know what I was willing to risk before they would participate.”
Parrino's experience is increasingly common in today's economy, as many independent contractors are finding the pursuit for cash a difficult one. Still, with patience and the proper planning, a great idea can become a reality. If you have a great business concept, you should consider financing alternatives from the outset. Use the following tips to jump-start your quest for capital.
Six Steps to Securing Capital
Future business owners should follow these important steps in hunting for funding, according to Francis Carroll, CEO and founder of the Small Business Service Bureau:
- Get Experience: “Go to work for someone else, learn the business in which you have an interest and on your own time, work toward developing your plan,” Carroll advises. By gaining experience, you will not only have greater insight as you embark on your own, but the bank or the potential backer might have more confidence in your business idea.
- Write a Business Plan: Carroll's organization and others like it offer assistance and guidelines for constructing a business plan. Additionally, the Service Corps of Retired Executives (SCORE) can offer expertise in this area.
- Get Sound Advice: “The initial stages of striking out on your own have everything to do with finding the right professional advice -- and that will cost you some money,” says Carroll. He explains that “many people can develop the right concept, but execution is another story.”
- Build up Relationships with an Attorney, a CPA and a Bank: Without them, you may be skipping steps that will ensure longevity in your business. “Whatever front-end money you have to spend should be spent on professional advisors who will enable you to get started in the right way,” Carroll says.
- Spend Cash Only: Although the backing of venture capitalists may be tempting, chances are you will be signing away your business's substantial future profits or ownership rights if you go this route. “Venture capital is quick money, but starting your business is not a quick proposition,” Carroll says. It is unwise to let an attorney or other professional work for you in return for 5 percent or 10 percent of your profit. Pay for their services up-front.
- Take Your Time: “Start slow, keep your overhead low and be prepared to work long, hard hours,” Carroll advises. “Many great businesses started in the garage.”
- Stay Focused: “It's all about persistence, sticking to your plan, working your plan and maintaining a practical strategy,” Carroll says. “The financing will come if you do this, especially if you nurture the critical relationship with your bank.”
- Study Your Loan Options: The Small Business Administration, the government agency focused on supporting, counseling and guiding small business owners, offers different loans for people who want to go out on their own.
Articles in This Feature:
- Start Your Own Business home
- Are You Ready to Be Your Own Boss?
- Awaken the Entrepreneur Within with Help from Your Current Employer
- Test Your Business Idea
- Obtain Startup Capital for Your Business
- Can Entrepreneurship Equal Opportunity for Recent Graduates?
- The Rise of Mom Entrepreneurs
- Self-Employment at Any Age