Category: Finance & Capital

Building a startup is an exciting undertaking, but it’s also an expensive one – and most founders don’t have the funds to go it alone. So where does the money come from? While the occasional developer has the type of idea that attracts venture capital, the majority will have to pull together funds from a variety of sources, including crowdfunding and peer-to-peer lending. In other words, to build a business, you need to think socially.

The Rise Of Startup Crowdfunding

Crowdfunding is a vital part of today’s economy, funding everything from health emergencies to product development, but in the startup sector, the platform that really got everything going was Kickstarter.

Launched in 2009, Kickstarter was specifically designed to fund creative projects, whether that was a film or a product, like the fidget cube. Many companies have used the platform to fund early production of multiple products, and because funding is only released if the project meets its goals, the platform minimizes risks for investors and helps founders get a sense of how successful their ideas would be if they got them to market.

Another advantage of crowdfunding is that factors that can prevent founders from accessing a loan, such as credit history, just don’t matter. That means if you have poor credit or limited history, crowdfunding could help you get the money you need to launch your business. Crowdfunding also lets you build an alternative reputation for success, as most display prior successful campaigns – and those can be at least as important in swaying funders as a traditional credit history.

The Peer-To-Peer Model

While crowdfunding is a great option for businesses that need to fund a product concept, for those starting more traditional businesses and need to rent office space and get permits, they aren’t always the most helpful; these businesses need a less-directed funding framework, though they may not need as much money as a startup that’s launching a product. These are the startup founders who can benefit most from peer-to-peer lending.

Peer-to-peer lending, which has had a major public presence since about 2014 when Lending Club went public, is a model that uses a variety of data points to assess creditworthiness. Then, based on this scoring system, approved borrowers can borrow small amounts at low-interest rates from other members of the network. Each individual investor is able to assess approved applicants’ profiles and decide whether, and how much, to lend, but because there are numerous lenders on each project, the group minimizes their individual risk.

Compared to crowdfunding, individuals relying on peer-to-peer lending to fund their startup typically need a better credit score and a more structured business plan; while crowdfunding relies on traditional social networks – your friends will toss some money towards your new endeavor and share it with their friends – peer-to-peer lenders are private individuals whom you’re unlikely to have a personal relationship with. They’re lending from a place of goodwill, but it’s conditional. Your project needs to deserve it.

Whether you choose crowdfunding or peer-to-peer lending to fund your startup, the key is to find an audience that your idea appeals to – your crowd – and master the intricacies of the platform. Study successful projects and talk to investors about what they look for in a business plan. Even if this is your first foray into the business world, you need to put your best foot forward.

Starting a business could be your next step toward financial and personal freedom. But obviously there’s a lot to think about before in dive in.

First of all, is this the lifestyle you want to pursue? Second, do you have enough money to get started? Use the financial essentials below to help you determine whether launching a business makes financial sense for your future.

Look at Your Personal Financial State

If you’re trying to open a company, you’ve probably been setting money aside. Even if they’ve been doing this, most business owners still have to take out a loan, but your savings should substantially reduce the personal financial burden.

Along with evaluating your savings, check the state of your credit. Most entrepreneurs have to take out a business loan to get underway, but if you have bad credit, that step can be a challenge. If your credit ranks below 680, many financial institutions will not grant you a loan.

Thankfully, some online lending options will allow you to take out a startup business loan, even if you have poor credit. But it’s still a smart move to focus on improving your credit anyway.

By making on-time payments and building up your savings, you can erase much of the factors that have negatively affected your credit, which sets you up for a more secure financial future, both in your business and personal life.

Calculate Startup Costs

Once you know how much money you have to work with, calculate where you need to be. The Small Business Administration estimates that the average entrepreneur spends about $30,000 at startup.

The array of typical expenses involved in launching a business includes:

• Rent or mortgage for the building
• Utilities
• Website and other digital expenses
• Marketing, both traditional and digital
• Legal costs of incorporating the business
• Interest on your loans
• Equipment and office supplies
• Insurance, licenses, and permits
• Technological expenses

There may be a few more. You should make a thorough list with the anticipated cost next to each item.

This will determine how much you need to save. Add a contingency of at least 10 percent to the total to make sure you have all your bases covered if an unexpected cost arises.

Determine Living Expenses

Now that you know how much you need to spend on your business, figure out how much you’ll need to live on. You might keep your day job during the initial stages of your startup, but most people find they can’t do both for long.

Eventually, you may quit your day job, even before you start to make a profit with the new operation. Many entrepreneurs go at least a year before they’re able to pay themselves.

It’s always a wise idea to calculate your living expenses before you quit your job. You may want adopt a more frugal lifestyle, because, as mentioned earlier, it can take several months of operation with a new business for the owner to see a paycheck.

This might mean cutting cable and getting used to ramen noodles at meal times, but most business owners find the adjustments are worth it if higher profit potentials could be the end result. Save enough to sustain your lifestyle for at least six months.

Once you’ve hit that mark, quit the day job and go for it!

Understand the Tax Situation

Taxes are much different for small businesses from what they are for individuals. Suddenly you don’t get your taxes removed from your paycheck automatically. You have to pay self-employment taxes, and submit quarterly payments to meet federal and state requirements.

Every January, April, June, and September, you’ll write a substantial check to the IRS for taxes on your anticipated profits. If you miss payments, you may become subject to a hefty fine from the IRS. If you haven’t saved enough for these payments, tax season will be miserable for you.

Assess Your Prospects for Success

While you’re calculating how much it may cost to make your business happen, factor in what you could potentially take home. Begin by evaluating the market, and look at the number of competitors as well as the demand for your products or services.

If you see a lot of firms shutting down in your region, it might not be the best time to launch a new business. If you perceive that you could fill a much-needed gap, however, you’re could be set for success.

The financial considerations are vital, of course, but think as well about the non-financial benefits. For example, you’ll get to be your own boss and enjoy a sense of accomplishment from creating a company from scratch.

For many entrepreneurs, that’s worth a pay cut from what they were making at their previous job. Every operation is different, and only you can determine whether or not it makes good financial sense to start a new one.

You’ll weigh your potential costs and earnings to determine whether your profits stand a decent chance of outweighing your expenses. If your answer appears to be in the affirmative, it could be time to quit your day job and start building your business!

Are you thinking about starting your own business? The first thing you have to think about is definitely capital – becoming an entrepreneur is always a move in the right direction, but you have to plan your budget carefully and forecast the start-up costs. Ideally you will start with a small-scale business, so you can prove yourself as a business owner by starting by generating enough cash flow to sustain and manage your business. For example, if your main goal as an entrepreneur is to open a restaurant, open a food truck first, to generate enough profit to save for a future full-scale business.

It’s important to keep in mind that in order to start any business you have to first understand the costs specific to your venture. If you’re able to estimate these costs, you’ll also be able to determine the financing options available, or even find out that you have enough personal capital to start a business; find out what it’ll take you to reach break even point (when you’ll start making a profit); and help you manage cash flow once the business is up and running.

Understanding start-up costs

Start-up costs are the costs you’ll have before making an income. These can be broken down in expenses (costs involved in the preparation to open a business) and capital expenditures (one-time costs to purchase assets).

The exact costs depend on your specific business and industry, but we’ve estimated an approximate number to each of the costs you have to plan for, so you can get a sense of what your total start-up costs will look like.

Equipment

These costs can range between $10,000-125,000 depending on your business type and size. For example, if you’re opening a restaurant you’ll need ovens, stoves, and cooking utensils; but if you’re opening a hair salon you’ll need styling chairs. Plus, for most businesses you’ll always need at least one computer.

Licenses and permits

These costs can go up to $500 depending on the city or state your business is located in. Some businesses may require a general business license to operate, but all businesses have to abide to state and local government licenses – the costs vary here. Plus, you might also require a professional license in order to work in your area of your expertise. And if your business requires building a structure, you’ll also need a building or construction permit, to ensure that this new structure abides by local and state ordinances – this can take these costs up to thousands.

Office space

These costs will be a big part of your fixed costs, whether you rent or buy the space. You should estimate a monthly cost of $100-1,000 per employee, depending on the type of space you acquire and the benefits your business provides. Remember to add to that cost a rough $2 per square foot of office space for utility bills such as electricity and internet, which you will also need pay on a monthly basis. In the beginning, you can try mitigating these costs by either working from home, renting a coworking space, or travelling directly to clients – depending on the service you sell.

Website

If you only need to build a common company website, where customers can find more information about the brand, location and opening times, you can probably do this yourself by using a free website template. The fixed cost here will be your domain registration and the website plan you choose, which can cost up to $25/month.

If your business is online only, or if you want to pair a physical store with an online store, you’ll need to invest more on an eCommerce site. Hiring someone to set this up for you can cost between $1,000-5,000 depending on complexity. Plus, if you’re selling online, you’ll want to have different payment options available to your customers, in order to offer a flexible shopping experience that can ultimately increase your customer retention rate. By flexible, we mean accepting credit card payments – this will definitely benefit your sales, but will also increase your eCommerce site costs, as you will have to choose a payment gateway provider and make sure your site follows all the rules in the PCI Compliance guide, so you can guarantee the security of your customers’ data.

Inventory

If you’re providing a service, these costs might not apply, but if you’re business is in retail, wholesale, manufacturing or distribution, you’ll definitely need to have an inventory setup in order to sell. If so, you should set aside 17-25% of your budget for inventory. Bear in mind you need to balance your inventory: if you have too much you risk spoilage, but if you have too little you risk losing customers. It’s advisable to invest on a high number of inventory in the beginning, as you’re building brand awareness and relationships with your audience, so turning down a sale due to lack of stock is not ideal.

Marketing

Up to 10% of your startup budget should go to marketing. You can choose from different marketing materials, depending on your business type and the audience you’re targeting. From signs and banners to paid social media adverts and giveaways, you can easily control the amount you spend in marketing your business by picking the right options to fit your budget and engagement goals. And if in the beginning you need to cut your costs somewhere, the easiest cost to cut is probably marketing – nowadays you can start marketing your business on social media, by setting up free brand accounts in different platforms and relying on the digital form of “word of mouth”.

Payroll

If you have employees, you need to pay them (including yourself!). Payroll costs should be around 25-50% of your total budget, and besides salary, these include benefits and compensations such as bonuses and overtime pay. And remember that these costs are likely to change as your business grows and you hire more employees. In an ideal business, payroll should cost you only up to 25% of your total budget, but this will highly depend on your business type and size, and if you’re a sole proprietor or not.

Now that you understand all the different costs you need to account for when setting up a business, you just need to make calculations based on our estimates and find exactly how much money you need to start your entrepreneurial journey.

What’s your business worth to you? In abstract terms, it can mean the world. But knowing the actual value of your assets and equity is perhaps the simple most important factor in helping you plan for the future. Sure, an increase in assets typically means an increase in equity, but there are a few key reasons you should never be in the dark here.

1. Know where you stand.

It’s time to start thinking of more than what the costs are to you. At some point, it’s very likely you’re going to have to answer to more than your current balance. The courts, agencies, investors, and clients you enter contracts with aren’t going to be impressed by an estimate.

Investors in particular like to anticipate what kind of impact their funds will have, as this can inform what kind of ROI they can expect.

An independent appraiser will help reveal your weaknesses, too. These are not aspects you want revealed when it counts, such as during a sale or at the behest of someone you’re entering a contract with.

2. Make better decisions.

Buying and selling your business, as well as any associated equipment, is not an event anyone should enter into blindly. Just ask the pros at Equify – the market can prevent you from getting fair prices that work for your budget. You save money in all of the right areas when you know exactly where you should invest, and how much you should be willing to invest. This also applies to insurance, where coverage should be as cost-effective as possible, taking care of areas unique to your business.

It’s also way past time to start planning for your life beyond the business. If you ever plan on retiring, start getting regular appraisals now. Even if you’re not retiring, maybe you have a five-year plan to move on to another industry or company. If you want to get the absolute most upon exit, an accurate portrait of what you and your share of the business is worth is crucial.

3. Monitor and foster growth.

My, how you’ve grown. However, you can’t really stake a claim as to how much growth you’ve enjoyed – and whether or not you can sustain that level of growth – unless you’ve had some appraisals along the way. Who knows; maybe the value of what you own is higher than you estimated. And when you’re ready to sell or net a new investor, those figures pertaining to growth are the absolute ace up your sleeve.

That aforementioned benefit where weakness are revealed matters here, too. Knowing which area of investment could optimize your rate of growth is the ultimate example of knowledge being equal to power. If you want to take your company higher, you have to know which areas are most likely to help you take flight.

Overall, appraising your equity gives you greater control. It’s the solid evidence backing every important decision and demand you make. In the end, it’s also the best tool for goal-setting. Get a clear, accurate picture of what your business is worth, and set your sights on increasing value every year from then on.

If you’ve ever had the opportunity to meet traders, you will notice that they all tend to be quite different from one another. They could vary in terms of personality and style which is one of the reasons that there are so many types of trading. Now, if you want to be a successful trader, it is important to find a category that you fit best into and will ultimately allow you to understand what stocks to buy now versus down the road. It is only then that you will be able to make calculated moves and stick with your decisions. So, there are the most common types of traders and how you can find which group you fall into.

The Short-Term Trader

There are some people who just can’t hold a position for too long. As with most other things in their life, they prefer to finish off their projects within a set period of time. If this sounds like you, day trading could be the best fit. Here, you will find that you need to hold your position only for a few hours or a day at most. This means that by the time you go to sleep, you will have finished up your trades.

The Long-Term Trader

At the other extreme, you have the option of holding your position for years on end. This is why you should have nerves of steel if you want to engage in position trading. See, during the period you hold your position, you will find that numerous changes occur. This means that the market will not always work in your favour. What’s more, you might often have to go against popular opinion since you willhave to deal with changingtrends over the years. If this is something you are capable of, then you may find that this is a good avenue for you.

The Trend Trader

There are plenty of people who like to go with the flow. This means that they prefer to identify the current trading trends and participate in them. Thus, they end up moving with the momentum of the rest of the market. Now, to be able to do this, you are going to need to look at both fundamental and technical analysis. As such, you will need to be prepared to put in a considerable amount of work. Even then, there is some difficulty in determining the accuracy of the trends. Now, once you have narrowed down your trading style, it is important to stick with it, even when the results are less than great. If you wait it out, you may notice that your particular style actually works for you. That being said, you should also constantly evaluate yourself and your chosen technique. If there’s a lack of compatibility, however, it may be time for you to change.

You should be able to figure out what type of trader you areand in turn, you will find it easier to come up with strategies to suit your particular style to reach maximum success.