Starting a Business with Limited Funds

One of the biggest shocks for new business owners is how quickly they go through money. Even if you have been saving for years before starting your company, there are always unexpected costs. Thus, it is important to understand that you may have to get creative in seeking funding for your start-up entity, especially if you start with limited funds in the first place.

Borrowing money from friends and family is always an option to consider, but for many people it isn’t a realistic option. Below are a few considerations for first-time business owners:

Set a realistic budget

It is important to fully understand how much money you actually need. You must be realistic about how much you can produce or earn, especially in the first year, which can be difficult since you’ve never done it before. Also, look for ways to keep your overhead low, which may include working out of your house or setting your office up in an outlaying area of the city.

Offer low-cost investment opportunities

If your family and friends can’t afford to write you a large check, consider selling a share of your business for a smaller amount. For example, if a loved one can invest $1,000 and own five to ten percent of the company, it can be enticing and more affordable for those closest to you. Just remember to maintain a majority of ownership.

Obtain a loan or pursue crowdfunding

It can be difficult to obtain a business loan, but it is definitely an option you should look into. You don’t want to get your entity too far in debt, but having suffiient funds can help ensure that your business becomes a success.

Crowdfunding is a concept that has been increasing in popularity. A start-up business can amass small investments from complete strangers who believe in your ideas or business plan. For more information on crowdfunding, visit websites such as Kickstarter and Crowdfunder.

Borrow from your 401k

You should confer with your attorney or accountant before taking out a loan from your retirement account, but many permit you to borrow a certain amount of money as long as you pay it back within one year. Beware, however, if you fail to pay it back by the deadline, you will be penalized. Borrowing from your retirement account should be a last resort option.

Funding your business start-up through a self-directed retirement account may avoid the costly penalties associated with early withdrawals but there are numerous pitfalls for the careless business owner and such a strategy requires close supervision and assistance from professional retirement, tax and business advisors.

Whatever option you choose for obtaining funding for your business, it is always important to have a written agreement that covers factors such as interest rate, repayment schedule if it is a loan, and other key terms.

An experienced attorney at Nielsen Law Group is available to help with all your business matters. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.