Finance July 25, 2013 Last updated September 18th, 2018 815 Reads share

Business Funding: Do It Wrong And Watch Your Business Suffer

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Funding a business from the start can of course be a costly affair, but the truth of the matter is that it does not have to be as complicated as you may have initially feared. Instead, with the correct strategy and advice, you should be able to unearth more than enough money to allow you to start your business without endangering the potential future success of your company.

The 35% Rule

When it comes to funding there is one major golden rule that must be obeyed. Never borrow more than approximately 35% of the total start-up costs that are required. Why? Borrow too much and you will then find that you may be able to start your business, but you will then be spending too much of your turnover and profits on servicing this debt with it then crippling your ability to keep your business running in these first few difficult months. It is also worth noting that this percentage also applies to existing businesses, but instead it equates to 35% of your gross revenue.

Options

So what are your options with funding? Clearly your own resources will play a key role as it does save you paying interest and struggling to meet payments as was just discussed. However, most people will be unable to fully fund a business and this is where most people will go to the bank in order to get some help. There is a problem. A bank is limited in what it can offer you and in actual fact there will more than likely be better offers available elsewhere, so shopping around for funding is essential.

Financial brokers

Shopping for loans or other financial products can be tricky especially when you do not fully understand the industry. This is why hiring the services of an independent financial broker may be a good idea as these people will not only know about the different types of funding available, but can also advise you on what type is best for your own individual circumstances. They are not tied to a single company, unlike the bank, so do search for a broker that meets all of the industry criteria and holds all of the relevant qualifications for your particular country.

Don’t overestimate

New business owners are also guilty of overestimating how much money they need, so it is essential that a concise and accurate business plan has been created with a full financial breakdown. This plan should then be shown to the broker, or a business expert if you have access to one, to allow them to determine what you need. By doing this, you will often find that they suggest a smaller amount of money or a toning down of your ideas until you are established to ensure that the correct funding is then put into place without it putting your business under undue stress.

The funding of a new business can be difficult, but by taking your time and getting the correct advice you can look forward to your new business flourishing without stressing about meeting various repayments. Do not gamble with everything you have at the outset and do also avoid just going to the bank and believing everything they say is true.

Just remember that finance gets your business started, but too much funding, too little funding, or too many expenses, will only undo your hard work and  potentially spell the end of your business.

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iryna ostapets

iryna ostapets

Iryna Ostapets is a finance writer and advisor. She likes writing about personal finance, taxes, debts,accountancy and other things.

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