Funding you online business is perhaps one of the scariest things you’ll have to do, especially if you’re on a tight budget or you don’t currently have a well paying job.
If you borrow from the bank you’ll be faced with paying interest and eventually paying it all back. You want to be absolutely sure that your business will be successful in that case otherwise you’ll be paying it off for a while.
This section will cover the various funding methods that will assist your start-up.
The Low-Cost, Tight Budget Method
The more money you have, the easier it will be to start your business. Luckily, online businesses can be started up for almost next to nothing.
The secret to starting a business on a low budget is to make a little money go a long way. A tight budget will force you to think outside the box and leverage all the opportunities that come your way.
The Frugal Lifestyle
Starting a business can be risky so the safest (but hardest thing) to do is to keep your job while working on your business.
One option is to work part-time to earn enough cash for the essentials but devote the rest of your time to your business.
Some people will keep their day job and work on their business at night.
The key thing is to be financially safe and secure and to cut down expenses so that you won’t run into problems. It will take you longer to start your business but you’ll be in a better financial position in the long run.
Thinking frugally forces you to be smarter with your money and make the most out of the least.
Every Penny Counts
There are many ways to save money while starting up a business.
- Buy what you need and not what you want.
- Shop second hand and check out garage sales, thrift stores, and eBay! Shopping second hand isn’t glamorous but it will save a lot.
- Create a daily, weekly, and monthly budget for yourself and follow it to a tee.
- One effective method is to have a customer pay for the product before you yourself even have it. This only works with physical products. Instead of buying or creating the products first and then selling them, get the money first then create the item and ship it out.
- Focus on the business before investing back into yourself. Sacrifices will need to be made in order to get your business up to the level where you’ll be able to take a step back and relax. Rent out a cheaper apartment or drive a cheaper car while growing your business.
- Work smart, not hard. Focus on the tasks that will wield the biggest results.
- Find people who will work for free. This is a lot easier then you think. There are many people who will do jobs for you in return for a good recommendation.
- Find professionals who are willing to guide you for free. Join a mastermind group and you’ll be able to get free advice from other business people.
Making Do With Nothing
Bartering and trading are excellent ways to save money. Bartering and trading is essentially getting something in exchange for one of your products of services.
Southern Barter is an organization to help facilitate bartering and trading in your area. You can search online for similar organizations.
Don’t ever buy computer software before trying out the trial versions. Most programs offer a 30 day trial period for free which may be long enough to get your business off the ground. You can always buy the program later.
Before going out and buying an expensive program, search for freeware (free software) that can do the same thing.
You can find freeware online from many websites. We recommend:
The Benefits Of Being Frugal
Being frugal does have its hardships, it requires discipline and foresight but in the long run you can save a lot of money.
Investors will want to have a say in the direction of your business so if you can fund it yourself you’ll retain full ownership. Because you don’t have investors breathing down your back, you’ll be able to make decisions quickly and on the spot.
Assuming you maintain full ownership of the business, you’ll reap higher profits and you won’t have to worry about paying back the investors.
Thinking frugally will prevent you from spending wastefully. Most millionaires are millionaires because they spend wisely.
Finding A Good Investor
Some business start-ups require an initial investment that may be out of reach for most people. In those cases where a large start-up capital is needed an investor is their best option.
If your idea is good, investors will invest in your business with the hope that there will be a return on investment or they’ll invest for partial ownership.
It’s important that you know your options when looking for an investor.
Friends And Family
This should be your first source of investments since your friends and family are going to be the most flexible when it comes to you paying them back and simply just dealing with them.
Family members and friends will usually not charge you interest on the loan and you won’t have to deal with bureaucracy that’s usually found with a bank. You’ll get your money right away with your family and friends.
Depending on the people you know, it’s possible to get a large amount of money by asking for a little from everyone.
There are downsides to getting money from your family though.
Approaching family members and friends for money can lead to problems in the relationship.
You’ll have to be careful with how much company stock you give up to your friends and family. You don’t want to give them too much ownership and then have the company succeed… it can lead to sticky situations.
Be sure to have proper terms of agreement written that all parties understand to prevent misunderstandings.
Often time’s people who get loans and funding from family and friends keep the terms of agreement unstructured and loose. This can lead to many problems.
Angel investors are people who are willing to fund small businesses and young company start-ups.
They’re usually much more lenient then full on investors but they’ll still require a good business plan and some evidence to prove to them that they’ll get a return on their investment.
Angels usually avoid getting involved in the actual business. They just want to provide you with the funding and they’ll let you run your business.
Also, angels usually give you more time to return their investments, anywhere up to 5 years.
Here’s a list of angel networks that you’ll find useful:
Getting a venture capitalist to fund your project will not be easy.
Venture capitalists will not give money to start-ups. They want to see that you have a good track record and that you’re able to deal with big loans. Venture capitalist often invest anywhere from $500,000 to $10,000,000 or more.
If you want money from a venture capitalist you need to be in a good industry that shows growth. You’ll need a proven track record with an experienced management team. Venture capitalists are looking to make a big return and so you should be ready to give up control and leave it in their hands if need be.
If you’re thinking of eventually getting a venture capitalist it’s best to make connections now. Attend seminars hosted by venture capitalist and connect with them online.
Research the different venture capitalist firms and focus on the ones that invest in your industry.
Check out these this resource to learn more about the venture capitalist industry:
Alternative Financing Sources
If you can’t find an Angel investor, your family and friends can’t loan you anything and a venture capitalist is out of the question, there are still many sources you can tap into.
Credit cards and lines of credit are excellent sources, try to find a credit card that will offer reward points for money spent and be sure to get a card with a low interest rate.
RRSPs and your 401(k) s are another source of funding, just be sure to consider the penalties for early withdrawal.
Home equity loans are another option, this can be risky though and so you have to ask yourself… are you willing to lose your home?
If you have poor credit, some banks and investors can offer you a high interest loan.
Microloans are just as the name implies small loans. These loans usually go between $5,000 and $25,000 and you can receive them the day you apply for them. There are many organizations out there that offer micro loans and we recommend you check out:
Grants and awards are another way to go. Many companies and organizations offer grants and financial awards to innovative entrepreneurs. You’ll have to do some research to find these though as there isn’t any resource that keeps track of them all.
Buying An Existing Website
These are thousands and thousands of online businesses, many of which are quite successful.
Some business owners either don’t have time to operate the business or they’ve lost passion for their business. Other businesses have a lot of potential but the owners don’t have the motivation to fully take advantage of it. There are the businesses you want to think about buying.
If starting a business is too much work for you, purchasing one may be an option for you. By buying a business you’ll be avoiding all the work of starting it up and all the expenses that came with it. Starting a business can be easy, but marketing it and establishing yourself in the market can take a while so buying a website that’s already established will save you a lot of time.
Although it’s not necessary, look for a business that already has a steady flow of customers going through, you’ll be paying more but you’ll have the security of knowing that the business actually works.
Some people make online businesses with the strict intention of selling it after the initial start up phase, avoid these sellers as they’re looking to make a profit and they may have used methods to inflate the price of the site.
Look for owners that are dispassionate about their original idea, no longer have time to maintain it, or owners that are strapped for cash, these kind of owner s will sell the businesses for a cheaper price.
Look for a deal where you can put down a down payment and pay the rest in installments. If the business is making money, you can use the profits to pay back the installments.
Some business owners are willing to lease out their business. In the case the owner will continue to own the business but you’ll run it until you’ve paid off the asking price.