Personal savings as Startup Finance
Posted by admin on November 4, 2009 - (0)
Tapping the personal saving is one of the many alternatives one you have to fund your business. You may fund it depending on the resources available to you. So here are a few points which come in handy when you use personal savings as a source of your funding
1. Keep $5,000 in the bank
A good thumb rule for you would be to have at least $5,000 in the bank at all times. This is not only good for you but also for your business. This is because no matter how great your business concept is, there’s a decent chance that you’ll need a sudden infusion of cash at some point in the first 24 months of opening your doors. Reasons could be many ranging from dealing with a problem, such as unexpected bills or legal work, or to fund an opportunity, such as a new client who won’t pay you up-front.
2. You could borrow from your 401k in a limited manner.
Borrowing from your retirement savings is not such a bad idea. Most plans allow you to borrow up to $50,000, or 50 percent of the value of the account, whichever is less. This is penalty-free, unless of course you don’t pay the money back. You will need to pay back interest to your own 401k account at a competitive rate set by your plan administrator so you can replenish the loan without losing the capital gain. Also this kind of borrowing isn’t at all uncommon and may be a smart solution in your case. These 401k loans are documented carefully, so this is the type of entrepreneur-to-business loan that usually gets repaid by the business, rather than typical entrepreneur-to-business loans that often get forgotten or forgiven
3. Use low interest credit cards and manage them
You should be able to use a credit card effectively. As long as you can avoid building up a balance on your card and paying exorbitant interest rates, there’s nothing wrong with relying on credit cards to finance your business expenses.
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How to start on a Shoe String Budget?
Posted by admin on November 4, 2009 - (0)
Funding and finances are the two major areas of concerns for people getting into small businesses. More often than not, they have to deal with show string budgets for their businesses.
So, how does one manage a small business on a show string budget? There are numerous ways to tackle this, some of which are mentioned here:
1. Set realistic goals.
This first step in this regard is to have a clear understanding about the scope and size of your business. This basically means understanding what the business really entails and what the prospects of growth are. Once this is done, review the business you have in mind and determine if it is within a range that’s both attainable and desirable.
2. Plan costs properly
Generally, absence in this aspect leads to underestimation or overestimation of the costs which causes problems in the long run. Hence it is always better to have an earnest and realistic estimation of the costs.
3. Put your money where you expect fruit
While starting a business there’s always a money crunch and generally at this time, many small business owners put most of their money to buying fancy equipment and lavish office space. Such costs should be done without and only those aspects should be funded which are profitable.
4. Control the cash
In the case of a shoe string budget and limited capital, cash flow controls every decision in shoestring enterprise. This can be the only way to navigate during your start-up phase. Another important thing to keep in mind is only when you have adequate cash can you think of earning profits
5. Balance your sales and profit objectives
Try to maintain gross profits at least equal to the industry averages. And strive to give the business the best balance between a solid policy of capturing sales without sacrificing needed profit margins
6. Be ‘lean and mean’.
A struggling start-up does not need dead weights. So try to keep your fixed costs down, and spend only on items that can sufficiently contribute to improving the bottom line.
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Where to get necessary Finance?
Posted by admin on November 4, 2009 - (0)
Having worked out the fundamentals and figured out a name for your business takes you to the next step which is where to get the necessary finance to fund your business. This is a million dollar question and goes a long way in deciding the health of your business.
There are a few options which you could tap to get funds, such as:
1. Personal Assets like Savings Account
Your personal assets form one of the primary sources of your funding as they are readily available at your disposal. You could invest a part of your saving to fund your business. What this ensures is it is your money so you are not liable to any external source and also reminds you of the investment which is your own.
2. Use low interest credit cards
This is one of the most favorite source which is tapped by most entrepreneurs around the world. The reason- the credit which they enjoy. You may take one or two credit cards and juggle with your finances. You may increase your credit lines if you don’t miss payments, and if you pay at least the minimum on time. Credit cards provide special offers which you can take advantage of sometimes at a favorable rate. But also be wary of the risk which you are exposed when you run into losses, your credits may increase and land you in bad debt. So, exercise jurisprudence when you use your credit card!
3. Life Insurance
Your insurance policy may be another good option, especially if you have a whole life policy with a sizeable cash surrender value. You could call your insurance agent and figure out the options to get cash against it. Every policy is a bit different, but you may be able to withdraw the majority of your cash for a good rate with no underwriting.
4. Friends and Family
It has been estimated that almost 60% of the small businesses start with assistance from friends and relatives. There is another advantage. A loan from family or friends may actually save you money, since they are more likely to offer you favorable terms and waive points, up-front fees, closing costs, and appraisals. So don’t feel shy and exhaust all possibilities.
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