Startup Funding Options

So, you want to start a business; you have this great idea for one; or, you have a product that you want to introduce to the marketplace.  But what is holding you back?  Money?  Well, there are several options for you to take advantage of.  Let’s take a look at them.

Many aspiring entrepreneurs will say that they will take the money out of their savings.  According to a recent study funded by the Ewing Marion Kauffman Foundation, nearly 70% of entrepreneurs rely o their personal savings. About a quarter of entrepreneurs rely on venture capital and “angel” or private investors (see my earlier essay on Angels vs. Venture Capitalists), while only 15% rely on friends and family. An even smaller percentage — about 7% — received funding through corporate investments. Crowdfunding is also a popular alternative. According to Fundable, a small business crowdfunding platform, crowdfunding raised $5.1 billion in capital in 2012.

There are other options other than those indicated above.  Depending upon the state you live in, you will want to reach out to an economic development agency.  There you will be able to find financing through tax-free bonds.  For example, in New York State there is the New York State Industrial Development Agency, which issues double tax-free bonds.  That is, the income earned from the bond interest exempted the purchaser from both New York State and federal income taxes.  These will offer a much lower interest rate to you from those in the market.

If you are contemplating a manufacturing-based business, you may consider leasing equipment, the supplier of the equipment will finance the purchase of the equipment.

If you are looking to purchase an existing business, the seller may be willing to fund at least a portion of the sale with a mortgage.  This is true especially in the restaurant business and other small businesses. The seller will usually stay with you in the business for about three months to make sure that everything is going smoothly for you and to introduce you to suppliers and other vendors.

Your success in this regard is to think about other financing sources and to think outside the box.



Are you Choosing the Right Suppliers?

Recently, my son told me that he was going to open a store in another state and was scouting the area that he wanted to establish it in to determine if there was enough of a population and traffic to warrant a successful store.  He started to relate a flow of consciousness about this thoughts, and enumerated a few of them including which suppliers to have, who would bring in the olive oil, cheeses and beer at a good price.  I voiced my thoughts and then thought that the following would be good information for other aspiring entrepreneurs to contemplate.

For any business, there is heavy reliance on their suppliers.  Any interruption in the supply chain could seriously impact their long-term viability.  Choosing the right suppliers and using performance measures to re-evaluate existing supplier relationships can help reduce risk and prevent problems down the line.

Customers are also affected by poor supplier relationships.  They can’t find what they were looking for because the supplies weren’t delivered.  They don’t care, as far as they are concerned, it is your fault that they can’t get what they want.

So, how do you determine whether a supplier is viable or not.  There are three factors which you must consider:

  1. The suppliers’ financial and organization stability
  2. How much of a priority you are to them given your size
  3. How willing and proactive they are in communicating with you.  Are you notified of issues before they arise so you can be proactive instead of reactive with your customers?

Investigate the supplier.  Ask for references to determine if they are reliable and treat you with respect. And follow up on them.  Consider four factors with measuring performance:

  • Cost.  Not just the cost to you, but does it cost you money to do business with your suppliers?
  • Quality of their products or customer services
  • Responsiveness to your needs
  • Their use of technology – are they more efficient because they adopted new technologies in their inventories and billings and communication with you?

If any problems arise with your suppliers collect data specifically on that one so that you can have a “fact-based” talk with it about any issues.

Investigate problems. If a problem should arise, find out why the performance is not up to par instead of terminating the relationship.  You should strive for long-term partnerships.  Think of it this way:  your supplier is a stakeholder in your business, if you fail, he loses a customer and his sales go down.  Therefore, it is important to maintain that relationship.

Taking on a supplier.  You may decide to take on a new supplier if he has a new product or brings something different to the table.  In general, it pays to not rely on a single supplier in case problems arise.