Tune into today’s episode to Side Checks podcast to explore 4 common methods on how to fund your small business.
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How To Fund Your Small Business
In today’s episode we are going to be walking through how to fund your new small business so you can get paid for doing what you love.
We don’t want you to feel so far removed from earning money by doing what you love. Instead, we want to bring it to the forefront and explore ways you can actually get paid inside your new business at the beginning.
Get comfy, put your thinking cap on, this episode is going to have you thinking outside the box and how to secure your next paycheck for creating an amazing company.
Funding Methods For Your Small Business
When it comes to funding your small business, there are several methods. And the best method for you will depend on your current financial status and your business. However, there are 4 methods that we are going to break down today.
- Self Funding – another income stream of yours pays for the overhead and expenses.
- Business Funding – income from your business pays for the business itself to run. You can expedite this process by creating what I call a Client Funding Promotion.
- Sponsorships – working with another company to supply funding in exchange for promotion and exposure.
- Crowdfunding – using a large group of people to fund your big idea through the use of platforms like GoFundMe and Kickstarter.
Knowing Your Numbers
Now before we dive into different ways you can fund your new business, I want to first talk about what you will be funding. We want to truly know your numbers and ensure that you’re business is starting off with foundational success.
If you haven’t already, I want you to calculate your monthly overhead for your business. This is the total amount it costs you to run and operate your business each month. This would include things like subscriptions, hosting fees, or any fixed expenses that do not change.
- Hosting Fees
- Fixed monthly expenses
Next, I want you to consider any monthly expenses. These won’t be fixed each month, instead, they will vary in amount of may not even occur every month. Examples might be contract labor costs, energy bills, or ad spending.
Get a clear idea of your average monthly expenses and your regular monthly overhead. This total will be your monthly cost of running your business. And this amount should be considered when thinking about funding.
The first option for how to fund your small business is called personal funding. Personal funding is when you fund your own business through another income stream.
This could be your 9-5 job, a side hustle gig, or any other income that you have.
You can use this income to fund your business each month, treating yourself like an employee of a larger overall business.
If you have enough income coming in to fund your business and meet all other financial needs, my best advice is to transfer your business funding amount once a month.
Create a detailed and organized list of all your business overhead and expenses and what date they come out of what account. And if you can get them all to come out of the same account, preferably a business checking account for your business, the better!
Make a list of the dates they come out each month and the total. Transfer that total to that account once a month, perhaps at the very beginning or very end.
This way each month your business expenses all draft from the same place and have a regular replenishment schedule.
The next way you can fund your small business is similar to personal funding. But it’s business funding.
In this method, you can have all of the earnings from your new business fund the monthly overhead and expenses. When they fund it completely, this is your break-even point. Any income that is left after your business is funded each month is your profit.
Now I know what you may be thinking… Amy if my business is new and isn’t earning income yet… how can it go on to fund itself?
Well, this is a great question. Chances are when you first start your business, you may not be making sales on day 1 and it may take time to gain momentum to earn income, break even, and make a profit.
However, you can speed up the process. Something I love encouraging clients to do is to create something I call a client funding promotion.
This is a method where you discount your products or services to a small number of people to fund your business until you begin gaining organic leads.
This can be a win-win scenario. The client receives a great discount, you receive funds for your business, and you gain experience that you can use to elevate your offer even more for your first full-price client.
Another method to explore how to fund your small business is through sponsorships.
When your business has a sponsor, they will pay you in exchange for promoting their business.
Sponsors typically partner with companies who have or will have audiences interested in their business but do not compete. This creates a complementary relationship since you and the sponsor can benefit from the same audience.
When contacting potential sponsors, you want to ensure you have a valuable pitch ready to go. This will explain why you will be a great investment for them. You can also provide more details about your business model and plans to earn income.
Sponsorship opportunities are typically easier to land as your business grows and have performance metrics behind it. This is valuable information to the sponsor showing them how their brand will gain exposure.
However, as a new business, you still have value. Focus on projections and your plans for the business. You may even find that since your business is so new, companies are more excited to sponsor you to have a voice in the business development process.
The next way you can fund your new small business is through crowdfunding. Crowdfunding is the practice of funding a project by raising money from a large number of people, typically online.
On these platforms, you have an opportunity to showcase your project or latest venture. You state the amount of funds you are trying to raise for this project. And what donors will receive when they donate funds to help you make it happen.
You can even create tiers, promising more exciting items in exchange for a higher investment.
For example, if you’re starting a blanket business and you’re out to create the softest and coolest blankets on the planet, maybe you create a crowdfunding opportunity in efforts to raise $10,000 to launch your business.
You can promise investors or backers that donate $100 or less public acknowledgment on your website. And for investors who donate more than $100 maybe they get one of your blankets for free. And for $1000 or higher, maybe you give them customized blankets.
A really famous Kickstarter case study is from the card game Exploding Kittens. You can find this game just about everywhere now. Exploding Kittens had a 30-day funding period in 2015 on Kickstarter and raised over $8,000,000 from more than 200,000 backers.
Elan Lee is a co-founder of the card game and in so many interviews he explains that their goal was to raise $10,000 in 30 days. Instead, they found themselves having to defuse fraud alters on their bank account because what they ended up depositing was a check close to 9 million dollars.
This was so far from where they thought they would be and he says it’s completely because of the community aspect of crowdfunding.
Which Funding Is Right For You
The best place you can start is by determining how much funding you need. Either on a monthly basis or within a lump sum.
Then explore each of these options to see which ones are relevant for yourself and your business. Or if there is a combination that you can use.
For example, part of your business is self-funded, another part is funded through a discounted service while you’re working to gain organic leads, and the remaining might be funded through sponsorship opportunities.
Explore New Small Business Ideas
If you currently do not own a business, or you’re looking for a new idea, download my free list of 500 Small Business Ideas right here. This list is even categorized by things like industry, income type, and initial funding needed.
No matter what entrepreneurship looks like for you today, don’t discount the power of funding. If you do, you might be leaving money on the table that could be going into your pocket.
You and your business carry so much value. And there are ways to earn income from that value my friend. Believe me.