It takes money to start a business. But it does not have to be your money. There are a couple of key things to keep in mind. First, regardless of whether you are starting with none of your own money, it is critical to determine how much money you will need to start your business successfully. Second, and this is the SECRET SAUCE, you will have to figure out what funding sources are available to you and STACK them to come up with the amount of money you will need to start your business. Perhaps as important, you want to structure your funding to create as much “equity” in the deal as possible.
The financing you will need and how you will structure your deal will depend upon what kind of business you are starting and your business model. What your stacked funding ends up being starts with the question, “Who stands to benefit from my starting a business?” In most cases, who benefits includes your customers, vendors, bank, and, in some cases, investors. It could also include communities and government entities.
For an example of how stacking funding sources works, Click Here to download a an excerpt (Special Report) from my Guide, How To Start and Finance A Business – Even If You Don’t Have Any Money.
If you have done your research and figured out how much money you need, you can then start figuring out how to stack financing opportunities from those that will benefit from you being in business to get what you will need. For example, your potential customers may be willing to pay for your product or service in advance or perhaps give you a substantial down payment. Your vendors may be willing to extend credit and provide longer payment terms. And, of course, your bank may be willing to make a business loan for working capital with a Small Business Administration loan guarantee.
The key point is to know what you need and then ASK! And, Ask, and Ask, and Ask!
If you are a new entrepreneur and never started a new business venture, get this, you will need the cooperation of other business owners. Here is the good news, almost all successful small business owners want you to succeed AND will help you. In fact, most will be delighted to help you, especially if they have something to gain.
The key is to ask for what you need. Whether it is trade credit, a down payment on an order, or a straight-up investment, if they can do it, most of the time, they will if it is commercially sensible. If you ask and they say, “No, they can’t,” then ask, “What can you do, or what would it have to look like for you to do it?” Usually, this question gets a positive response. In this case, you can readjust your business plan to take advantage of what can be done. Key takeaway: keep making adjustments until you unlock the right combination of funding sources.
Please Note: When I say almost all successful business people want to help you AND will help you, it is true up to a point. Your goodwill with other business people can run out if you start screwing up or you come off as an unprepared flake.
Here are two mistakes to avoid so you do not burn up your goodwill with other business owners.
The first mistake involves a misconception that you must paint an entirely rosy picture for the other businesses to work with you. This usually means being less than truthful. Don’t do it. It will come back to haunt you! Successful business people deal in facts! If you are a startup, own up to it. If you have a soft spot in your business startup, own up to it.
It is a lot better to be seen as forthright than burn a bridge. If you are upfront, one of two things is going to happen. The transaction will take place, perhaps on terms different from what you originally asked for, or it will not. If the deal does not come together, you can still return to that person if things change or for a different opportunity. In any case, you have added to your network. If you are seen as someone who cannot be trusted, they will stop taking your calls.
The second mistake new entrepreneurs make is they “go off half-cocked.” They do not do all the necessary research to determine if their deal will work how they think it will. They base their decisions on unfounded assumptions and speculation, and the startup business fails. Let me be clear here. Successful business people will help you up to a point. But if you come off as sloppy and careless, especially with their money, they will drop you like a hot potato!
Most startup entrepreneurs rarely have all the money to start a business. So, whether you have no money, some money, or a big chunk of money, you still have to go through all the necessary steps to succeed.
The point is, DO NOT SKIP the steps you need to take to be successful. You still need to do market research and cash flow projections to determine if it is a viable opportunity and how much money you will need to launch your new business successfully.
When building cash flow projections, many startup entrepreneurs make the mistake of relying too heavily on anticipated profits to fund their ventures. This often stems from a rush to move quickly, either because they started without sufficient cash or failed to adjust their plans based on available funds.
It’s crucial to test your assumptions thoroughly so you don’t start “believing your own BS.” If your projections fall short, you may find yourself in a financial bind because you were overly optimistic. While it’s important to move quickly, always double-check your assumptions to avoid letting your need for cash blind you to potential errors.
The problems created by poor decisions based on faulty assumptions often don’t reveal themselves immediately. Instead, the consequences tend to emerge later. By this point, you may be too far along to back out without suffering significant financial losses.
An important key to starting any business, including one you are starting with no money, is to look like a business coming out of the gate. There is something magical about looking like a business. It makes you real. It will be much harder to start a business if you do not first look like a business because you will lack credibility. It is relatively easy to look like a business. This entails forming your business entity, a logo, business cards, and a website. Using a credit card, you can do all these things for a minimal investment. Again, I cover all of this in my Guide.
Let me conclude this article with this. Starting a business with none of your own money can be done. I know because I have done it several times. Here are two examples where I was able to start businesses with none of my own money and the source of financing that made it possible.
The first example is an eight-bay car wash I built with absolutely none of my own money. I secured bank financing by getting the land owner to take a second mortgage, behind the bank’s first mortgage, for my down payment. The bank considered the land owner’s second mortgage, technically called “subordinated debt,” as my equity. This worked because if the bank had to foreclose on its first mortgage, it did not have to pay off the second mortgage. This deal worked out great because, and this is a key takeaway, I did my research, and I was confident the business would have a positive cash flow the first month I opened. It did, and it was a winner.
The second example was a cholesterol screening business. I needed two blood chemistry analyzers and all the testing supplies to start. In this case, I secured vendor financing and a 60-day grace period to begin paying invoices from the vendor. Again, I did my research, and the business was a smashing success on day one.
The key is doing your research before you start. Doing good research, which I teach in my Guide, will reveal if it is a good deal in the first place, the best way to finance the deal, and how to successfully enter the market. Armed with this information, you can move with confidence because you know your probability of success is high.
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