How to Organize Your Finances for Your Startup

November 1, 2014

10:00 am

Startups face a number of challenges before they can open their doors, whether it is a traditional brick-and-mortar storefront or a new online endeavor. Arguably one of the biggest hurdles we face hits us right in our wallet when we need to consider finance matters or take a better look at our own financial picture.

“Money matters” is such an appropriate term, because it is so true, money really does matter. Chances are that you will need some capital to get you going and keep operations running smoothly until you start seeing a profit. Odds are that you’ll need some help getting there. Before you bang on the door of a big bank, ask yourself some important questions:

  • How much money do you really need?
  • How much of your own cash can you invest?
  • Do you already own assets needed to run this business?
  • Do you have friends, colleagues, family or acquaintances that are interested, able and willing to invest?
  • What does your credit score look like?
  • Do you already have open credit lines available to you?

Now that you’re starting to get your ducks in a row, you’ll need to start seeking funding or some kind of financing for your startup. Wherever you start looking for capital, they will want to see your financial information first. Organize your budget so that it shows clearly all of your income in comparison to your expenses. You may be surprised to find Excel budget spreadsheets available online that are specifically designed to help you get your budget in order.

After you have tapped out your savings, hit up your friends and family, what are some other forms of funding available to you?

Equity Investment

An investor can make money available for your startup in exchange for an ownership share in your company. Be sure to consider how much you are willing to give up and at what cost. Don’t sell out more than 51% or you will lose control of your own venture. This is a slippery slope, so do all your research to be sure this is the right choice for your startup.

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Government Grants

When it comes to getting the financing you need for a startup, nothing really beats getting a government grant, since it is essentially free money that is given to you that you can put towards your startup. Depending on the theme of your new business’s theme and your own demographic, you can find out whether or not you qualify by visiting FederalGrants.com.

Commercial Loans

For startups seeking funding, traditional loans make up a large percentage of capital for small businesses. There are many types of loans available, but they will usually fall into one of these two categories:

 

  • Short Term: Usually for a one year term or less, they can use revolving lines of credit or debit cards for day-to-day expenses such as payroll, inventory and supplies. Note that these are subject to higher based interest rates.

 

  • Long Term: For larger expenses or fixed assets that will be used for more than one year like heavy equipment, vehicles and machines. These are generally secured by those new assets as a form of collateral.

 

In addition to the four “C’s” of lending (Collateral, Cash Flow, Commitment and Character), borrowers should educate themselves on other aspects of financing, filing a UCC (Uniform Commercial Code) for example. The UCC is a public notice that is filed notifying creditors they have the right to take possession of property or sell assets for repayment of the debt. This could deter a homeowner from putting their house on the line or possibly defaming their character.

Do your homework first, consider all your options carefully and make the best financial decisions for the success of your startup.

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Hilary Smith is an online journalist and often contributes research to help design eye-catching infographics. She enjoys covering the areas of business communications, VoIP technology, globalization, and online marketing for B2B and B2C companies.

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