In this article I’ll quickly go through a few of the basics relating to start up company finance. A start up company usually refers to a small business which is in process of being set up. The most important aspect of a start up business, other than making sure that all the bases are covered from a legal perspective, is finance. Without this, there can be major problems arising for the company at a later date. This is why it is so important for a start up company to get all the right set of start up company finance plans in place from the beginning.
At its simplest level, start up business finance means finding a suitable source of capital to support your company during its early years. This capital can come from a number of sources, such as friends and family, investors or even bank loans. However, as with everything in business, you get what you pay for. If your contacts are unwilling to lend you the money needed to start up your company, then it may be necessary to look elsewhere. For example, some banks will provide some form of line of credit to new companies, particularly if they have a strong track record.
Another option for start up finance is to get funding from the likes of Shroff Brothers, formerly Shoe Retail, which still has its original name and is today calling Saks Fifth Avenue. However, in these financially difficult times, you may need to look to alternative sources. One such route is to issue equity into your company. Although this would seem to offer the ideal solution, it comes with its own set of problems. The main one is that you must have fairly substantial equity to be able to access funds (although this is not always the case), meaning that the start up company may not have sufficient funds to keep going – which can lead to financial problems.
As well as finance, there are a number of other issues to be taken into account when you start up company. One of the most important is ensuring that employees are provided with suitable training so that they are able to do the work properly. This may be the only source of job security for an employee, so you must make sure that they are adequately trained on the various positions. Again, this may be the only viable solution for those working in more traditional industries, such as the construction industry, but may not be viable for start ups.
The last point to consider is the business plan itself. It is vitally important to think about how you intend to finance the start up of the business, identify the market that you will cater to, and ensure that the business has a strong strategy in place to achieve success. It is easy to get carried away with the planning side of the business and lose sight of the business side, so it is important to think about the business model as well, including an assessment of the risk factors involved, as this will give you a good idea of how much risk you are likely to be faced with.
Whatever you do, don’t go down the self-funded route when it comes to your start up company finance. There is plenty that can go wrong and it is far easier to get into trouble if you have no solid financial backing. By starting out with a small capital base you will be far less vulnerable if things go wrong. Of course, the risk will also be significantly reduced if you approach a professional lender who is sympathetic to the start up finance needs of new businesses.
