How much money do you need to start a business?Published on 10th June 2019 2019-06-10T11:00:00+00:00 - Last update on 31st March 2020 2020-03-31T15:59:34+00:00
If you have a great idea for a new business in your local area, you’ll, no doubt, be very excited about what the future may bring. But before you can run, you first need to learn how to walk. Becoming your own boss is never easy - it’s a full-time responsibility filled with many challenges, including the matter of funding. One of the most common questions that anyone choosing this path tends to ask is ‘How much money do you need to start a business?’ Much of this depends on a wide range of variables, including the type of business you’re establishing and your chosen sector, so, in truth, there’s no way of saying for certain how much it will ultimately cost. It all comes down to planning and preparation.
Appreciating the cost of starting your own business
Before starting your own business, your first step should be to draw up a detailed business plan for the next 12 months, including your growth plans, any potential issues and how much you intend to spend during this period. Naturally, you may have to use some of your own capital, to begin with, but you should do so within reason. Especially since depleting your savings could lead to further issues in the future. As such, to help you stay within your budget, you need to create a list of what your business needs to operate and the costs involved. This should include aspects such as:
- Type of premises - buy or rent? Freehold or Leasehold?
- Equipment, machinery, and vehicles - buy or lease?
- Website hosting and management
- Supplies and supplier costs
- Accounting and legal services - e.g. accountants and solicitors
- Sector-specific licenses and permits
- Insurance and corporation tax
- Staffing - In-house, contractor or freelance?
- Staff wages
In addition, it’s also wise to ensure that you have a contingency plan in place and are able to keep money aside for emergencies such as unexpected payment demands, late customer payments, credit card expenses or even the effects of natural disasters. Unfortunately, this is something that all too many business owners forget about, but thinking ahead could be what saves your business from failing before it’s even had a chance to take off.
Staying in control of your expenses
During the initial stages of your business, it’s only natural that you’ll be spending more money setting up than what you’ll be earning. But there are steps you can take to reduce your outgoings. As well as maintaining a positive, can-do attitude, the important thing to do is consider whether or not you can complete specific tasks yourself. If you have the time and the expertise, sparing yourself the pressure of hiring and paying someone else could prove more economical. But if you’re short of time and have cash available, then perhaps bringing together a team or outsourcing specific tasks could help you get more done in a day and establish day-to-day operations sooner. Nevertheless, whichever course of action you decide, you still need to keep a close watch on your spending and avoid any unnecessary expenses as much as possible. After all, any money that you save now can be used later to help support another aspect of your business.
How do I raise capital for a new business?
For anyone starting their own business, acquiring additional capital to support your idea can be tough. Possessing a limited trading history and an unproven business model, you may well find that many financial institutions may be unwilling to offer you funding. But there are funding opportunities available providing you know where to look. Some of the ways in which you could gain access to additional capital are by applying for Business Grants, Crowdfunding or Peer-to-Peer (P2P) Lending.
Grants are a popular choice for many new business owners since you’re not required to repay any of the capital you receive. However, they’re highly sought-after and you’ll be up against a lot of competition. But, it’s not impossible. In order to improve your chances of success and avoid wasting time, compile a list of the grant schemes operating in the area. You should also carefully review each of these schemes since they’ll all have their own unique set of application requirements determining whether or not your business is eligible. Just some of the questions you need to consider are:
- What can it be used for?
- How much could I receive?
- What sectors are eligible?
- Where does my business need to be located?
- How long will I need to have been trading for?
Another way of raising funds in support of your business by applying for crowdfunding, which involves you expressing across an online platform the merits of your idea, goods and/or services, past experiences and team members. Ultimately, you are aiming to convince investors that you’re able to turn your ideas into a thriving business. Therefore, because funding is based on the amount of interest you can garner from investors, there’s no limit to how much could receive. However, in exchange for their investment, you’ll need to give away equity (shares) in your business. Just remember not to give too much of your business away as it could lead to you losing control over the direction of where your business is heading.
Finally, another great way of generating funds for your business through is by applying for Peer-to-Peer Lending (P2P). Like Investment Crowdfunding, this also works by you having to convince lenders that providing funds to your business would be a wise investment. However, investors will join a panel rather than taking equity, allowing them to combine their funds and provide a lump sum. A short-term form of lending, anything that you do receive will need to be repaid using a Monthly Repayment Scheme over an agreed term lasting up to 3 years, plus interest. But it’s also worth noting that some P2P lenders may offer agreements that could last for 5 years.
Looking to raise funds for your business?
During the early stages of your business, acquiring the funds you need to support growth and manage effective day-to-day operations may feel like a daunting task. You may not qualify for traditional forms of lending and may also be having to work around a limited budget. However, there are plenty of opportunities available, you just need to find them. And as your business continues to trade and develop from a start-up into an established SME, you’ll find that the sheer range of funding opportunities available to you may well have increased, thanks to the Alternative Finance industry.
The Alternative Finance Industry is paving the way for a new generation of business finance solutions to enter the UK lending landscape, allowing more and more business owners to gain access to the capital they need to achieve their goals. All you need to do is source an agreement that’s appropriate for you, which is where speaking with a qualified business finance professional can help.
At Rangewell, we’re an Access to Finance specialist and have mapped over 400 lenders to offer you a complete and comprehensive overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to raise capital for any business, apply for Business Finance today or find out more with Rangewell.
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