Here are the top 11 Tips for Small Business Financing
A New Year typically brings promise and optimism. For some people, 2018 may finally be the year that they take the plunge and go into business for themselves – particularly if their careers have been less than satisfying during the past 12 months.
Small business owners also will look in the proverbial mirror and assess what can and should happen in the coming year. If 2017 has been a struggle, now is a good time to reassess operations and get things moving in a positive direction. On the other hand, if things have been going well, now might be the right time for expansion.
Before starting or expanding a business in 2018, entrepreneurs should write a business plan that will guide the company through the coming year and the next few years that follow. Accurately estimating revenues and expenses will be important. After all, you cannot predict profits without first calculating revenues and expenses.
Conducting market research is critical to that success. If you are starting a new business or scoping a possible new location, examine the area’s real estate market. Location is critical to success. Understand the costs of operating in the area in which you are looking to expand. Places like New York, Boston, San Jose and San Francisco are among the highest cost cities in America. While the earning potential is great in these places, the expenses are high.
Once a location has been decided, there are numerous other costs of running a firm that aspiring business owners must understand. These include:
- Licenses and permits – Different cities and states have different regulations regarding licensing and permits. Get a handle of what these costs will be during your planning phase.
- Legal fees – The format of a business (LLC, C-Corp, S-Corp, or partnership) will impact tax payments and financial liabilities. An attorney that specializes in helping small businesses can provide sage advice on incorporation, and in negotiating contracts, operating agreements between partners, and leases.
- Accounting fees – A good accountant can potentially save a firm thousands of dollars each year. Include accounting fees as an expense in the startup phase and when a business is up and running.
- Equipment – Equipment costs can be small ticket items (ex: laptops and printers for public relations consultants) or large investments (machinery for manufacturing firms), depending on the type of business. Manufacturers will typically have substantial startup costs. In such cases, entrepreneurs should secure equipment financing.
- Insurance – Business owners should have adequate general liability insurance, as well as workman’s comp for the staff
- Startup inventory and supplies – The cost of inventory and supplies naturally depends on the type of industry.
- Salaries – Payroll is a significant expense for any business. Startup firms often overstaff in the beginning (in anticipation of a rush of customers) then later cut costs. Expanding firms will have better knowledge of how to assess employee costs.
- Website development –Having a mobile-friendly, professional looking website is important to the success of any firm in the 21st century. Small firms often look to service providers like GoDaddy and Wix.com for help. Larger enterprises may want to invest in having a professional website designer do the work.
- Fliers, posters, menus, etc. – Even in a digital age, businesses still should have printed materials. While the majority of people tend to get information from their phones, older adults, who may not be tech savvy, still have a lot of spending power. Don’t ignore them.
- Marketing – Make sure your cost estimates include advertising in traditional and social media, as well as public relations assistance. While fewer companies are spending on newspaper and magazine ads, they are spending significantly on Facebook ads and other forms of search engine marketing (SEM).
- Utilities (electric, phone, internet access, etc.)
All of these expenses should listed in the business plan. Once startup costs are tallied, an entrepreneur will be better able to estimate the amount of cash required to launch a new enterprise. This is extremely important for anyone who is not self-funding and needs to apply for a small business loan to start or expand a business.
Aspiring business owners must become adept at calculating costs in order to estimate the point at which a firm will break even, and, eventually, become profitable. I usually tell entrepreneurs to figure out their costs and then build in a significant cushion when applying for small business financing.
Inevitably, unexpected costs will pop up and delay the launch of any new venture. There are varying sources for such costs: renovation problems, availability of building supplies and service providers, such as plumbers, carpenters and electricians. Anyone who has ever waited for a building inspection from a municipality understands that getting signoffs on required permits can take longer than it should. Preparing for delays – and their related costs – is quite important. The last thing you want to do is have to go back to a lender for a second round of funding because you did not anticipate your cost structure well enough the first time around.
Cost containment is one of the biggest challenges for a startup company or existing business. Being able to approximate costs is a valuable skill to have. In preparing to apply for funding, be sure to do the best job possible in assessing costs and them projecting revenues and profitability (based on those projections).
The SBA and local small business development centers (SBDCs) offer courses and mentoring for small business owners who need help with cost estimates. Look up your local SBA and SBDC offices to find out what services are available. Usually the price is free or at a greatly reduced cost.