What do you do when your money runs out? Where can you go for funding? Will you be able to raise enough capital to get you where you need to go? How fast will it take to raise the cash, and will you be able to do so before your funds dwindle?
When starting a business you need to think through all the costs, such as: how much will it take to build the product? How much to maintain it? What will it cost you to market it? etc. But what happens when revenue doesn’t come in as fast as money is going out and you’re forced to make tough decisions in order to maintain operations? For example, when we launched my latest business, we allocated money to the initial build out of our tech application, but when we were unable to continue adding new product features due to our lack of funds, the technology sat idle.
Cash is king!
As an entrepreneur I know that without cash, I can’t move very far very fast. Cash pays for resources to get the work done and marketing to help sell the product and operations to maintain it. We have a lot of expenses: developers, servers (and not just one, but two for staging and production), data storage costs, annual licensing costs, etc. etc., it goes on and on. Costs I didn’t anticipate are cropping up and the burn rate each month is starting to wear down our capital account! If you’re not in the tech arena, your business can still burn through startup cash fast if you have to buy equipment, inventory, advertising and hire employers.
So where do you go for an external cash source when you find out that you’re running low?
Consider these options laid out in a three-tiered approach.
- Angel Investors: We know the value of having great investors and knew it was important for us to eventually get angel money if we wanted to successfully get from where we were to where we wanted to be. Check out Gust, one of the more comprehensive and free databases where you can search for angels catered to your field, geographic location and business stage. Angel investors are individuals who invest, although sometimes angels may group themselves into angel organizations where funding is pooled. Because of this more individual quality, it’s easier to get funding from an angel investor than from venture capitalists.
- Bank Loan: We knew it was a long-shot, but we decided to try to get a line-of-credit or bank loan, just to help keep our momentum while we worked on raising external capital and revenue sources. Acquiring a bank loan can be a process where you’ll have to present financial information, a business plan, references and other crucial documents but don’t be deterred. A member on our team recently qualified for a bank loan for starting up her business. You won’t know if you’re eligible until you apply.
- Supplemental Income: Consider taking on new gigs to bring in supplemental income to help cover some of the more miscellaneous costs. This would mean burning the midnight oil to juggle both the gig and the process of starting a company, but being able to keep things moving is important. If you go this route, make sure you manage your time efficiently. You don’t want to show up to your paid position frazzled from spending all night on your business plan but you also don’t want to forget your budding company altogether if the new gig gets too time-consuming. Strike a balance.