Getting Started Overview

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Overview: Money

Back to that again. There's no room for fooling yourself when it comes to starting a business. Your dreams may help motivate you, and provide you with goals, but nothing happens without money. And, yes, the advantage goes to those with money. That said, many successful entrepreneurs are able to "sell themselves" into business or get enough "angel" money from close family or friends without having to come from a traditionally rich family.

Selling yourself into business. Selling yourself into business means finding customers willing to buy your product and service before you have to put up the money to provide it. The money basically comes in at the same time you have to pay your suppliers or independent contractors (also known as freelancers in the marketing and media business), people who provide their services to multiple organizations. As a service business, you can sell your way to success. Examples of these service businesses include computer maintenance and setup, software, sales and distribution of someone else's products or services, general maintenance, repair, cleaning, etc

Angel money. Getting angel money means finding family, friends, and acquaintences willing to provide you with cash to get you going. You can occasionaly find angels through "angel fund" organizations and regional competitions, but getting started that way is almost as hard as launching the business itself. Getting money from angels with no personal or professional connection requires creating a highly polished business plan, perfecting presentations, writing loads of e-mails followed up with as many phone calls. In any situation, the angel will want a piece of the action, in many cases a significant piece of the action, and maybe even a controlling interest. The less an angel personally knows and trusts you, the more he or she will probably want in terms of a controlling interest. If you cannot have a controlling interest because your angel has put up all of the money and insists on control, you had better respect and enjoy working for this person, because he or she will be in effect your boss. On the other hand, if the business fails, you can walk away, since under this scenario you won't have a financially vested interest.

Debt. To avoid giving up control, you might be tempted to borrow money. In that case, you don't usually give up stock or equity in the company, but you have to pay the money back. And, many early stage lenders will ask for a personal guarantee, meaning you have to pay the money back no matter what happens to the business. Don't expect to get much attention from banks unless you have significant personal assets of your own or can get a co-signer of a loan, someone who will be held responsible if you fail to pay back the loan. If your business will involve holding some kind of tangible asset, such as an inventory of products, you might be able to get a Small Business Administration loan. Your local bank can assist you with this.

A big word of caution about any kind of debt. You have to re-pay it. Debt can hang around your neck like a lead weight if you take on too much of it.

There's an old rule of thumb when planning to finance your business. Figure out how much money you need and then multiply it by three. Even if that's an exaggeration, there's usually a reason old rules of thumb stick around.

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