According to the latest survey conducted every five years by the U.S. Census Bureau, in 2007 women owned 7.8 million businesses in the United States and accounted for 28.7 percent of all businesses nationwide.
These businesses employed 7.6 million workers and generated over $1.2 trillion in receipts (2010, p. 1). While the number of women owned businesses is on the rise, it can sometimes be tricky figuring out how to fund a new venture.
Let’s say you’re an entrepreneur with a fabulous new idea, your feasibility analysis shows your idea is realistic and has the potential for success, and you’ve created a first draft of your business plan. Now you are focused on figuring out the details of the financial section of the plan. This is a key part of the business plan because it “determines the potential investment commitment needed for the new venture and indicates whether the business plan is economically feasible” (Hisrich, Peters, & Shepherd, 2010, p. 209).
As an entrepreneur, you need to paint a realistic picture of how to fund the venture, where and how the funds will be used, how you will ensure enough cash flow, and also your projected financial position of the venture over the first five years of its life. Now comes one of the more difficult problems faced by many entrepreneurs, obtaining financing.
Start-up business ventures can be funded in numerous ways with the most common external funding method being money from savings accounts or retirement plans. Other popular methods are borrowing money from family and friends, using home equity lines of credit, bank loans, Small Business Association loans, and even credit cards (Hisrich, et al., 2010, p. 310-313).
There are also other ways to creatively fund a new venture, such as:
- Partnering with another company through a research and development limited partnership
- Applying for government grants
- Obtaining venture capital funds
- Using public or private equity placement
- Seeking out angel investors (private business investors)
When looking at various funding options, consider the types that are available:
- Debt financing, which usually involves some type of interest-bearing mechanism like a bank loan and requires some type of asset to be used as collateral
- Equity financing, which means giving up a percentage of venture ownership in exchange for funds
- Or, a combination of the first two
To help ensure a successful outcome, take the time to evaluate each financial option on the length of time you will be able to use the funds, the costs of using the funds (such as interest payments), and also the amount of company control you might lose due to ownership positions others will then have. Research and analysis on the front end will save time and heartache in the long run.
~ Lisa Quast
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Photo credit: Microsoft Free Clip Art
Reference:
Hisrich, R., Peters, M., & Shepherd, D. (2010). Entrepreneurship (8th ed.). New York, NY: McGraw-Hill/Irwin.
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