Financing a New Business
Financing a new business is probably the most difficult part of being an entrepreneur. It usually takes an inordinate amount of time and effort, and there is no simple solution…unless you are independently wealthy. That is because financing a new business is highly dependent upon the type of business you are starting, or have, and the stage of development your business is in. Let’s see if we can pin down what you will be dealing with when looking for your new business financing:
- Smaller Small Businesses—This is primarily the small owner-operated business without employees. This category of business makes up the largest segment of U.S. businesses—approximately 22 million, or 70% of the total. This is a category of American industry that deserves more attention, because these are the small businesses, all over the U.S., that are working on the next great American Innovation.
However, these businesses are too small to interest investors, and the SBA Microloan program is too complex and time-consuming, so the primary source of financing is by you, the owner...or through "creative business financing."
- Non-High-Tech Businesses—This can be any one of a variety of businesses, but the major categories are manufacturing, healthcare, construction, food service, and retailer. Angel Investors and Venture Capitalists are now taking a renewed interest in investing in these areas of business startups due to some overall poor performances in the high-tech arena.
All the sources for financing a new business can be solicited for this category of startup.
- High-tech Businesses—This is the darling of American business, even though it is a small percentage of the total. Many authors, investors, academics and pundits in general just assume that when you say “startup,” you automatically mean a high-tech startup.
Unbelievably, there are many twenty and thirty-something’s that believe there was no such thing as a “startup” prior to the popular use of the Internet. Writers glorify these startups, and investors flock to invest money in them—all anticipating the next Google, Facebook, Twitter, or what have you.
Interestingly, there have been many more failures than home-runs in High-Tech. This category of startup is the domain of Venture Capitalists and Angel Investors. These two groups of investors were created by the need of high-tech businesses for startup financing.
Having said that, there is a commonality throughout each of those business categories that must be addressed when considering financing a new business, as follows:- Your expenses will always be greater than you planned for.
- Your revenues will be smaller and slower in coming than you planned for.
- More things will go wrong than you ever imagined.
- You can finance a new business with less money than you think you will need.
- If you want to be an entrepreneur bad enough—you will find the money for financing your new business.
It would be good if you committed these five things to memory and recalled them periodically as you go through your process of financing your new business. Each of the other reports in the Small Business Financing section discusses specific aspects of acquiring money for financing startups, so if you are looking for ways to obtain startup money for your business, be sure to check them out. Since owner financing is the most common form of financing a new business, I would suggest starting with the Owner Financing Business report, then continue to read the reports on business financing listed in the "List of Reports" of the Small Business Financing section.
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3/31/12
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