One of the most common questions people ask successful entrepreneurs is how did you get started? The answer invariably revolves around money. Curious people want to know where the initial funds come from, but also wonder how new owners finance ongoing operations, expansion, education, advertising expenses, and product development.
Of course, there are dozens of other reasons for entrepreneurs to seek funds, but they usually account for the vast majority of their efforts. So, where does the capital come from? In addition to common techniques like borrowing and networking with angel investors, new owners turn to family, friends, personal savings, scholarships, current cash flow, business treasury accounts, and long-term investments. From startups to mature companies, entrepreneurial owners find money in many places. Here are some of the areas for which they seek financial backing.
One of the most challenging times for any business owner is the period just before opening. Startups need ready cash for all the unexpected expenses that arise. Typically, founders turn to family, friends, crowdfunding, personal networks, savings accounts, small business loans, traditional bank borrowing, and angel investor groups.
Once you decide to acquire a four-year degree to give you the necessary skills for success, the first obstacle is money. For so many business people, the smartest way to finance education is with scholarships. When savings and student loans are not an option, scholarship cash can save the day.
In fact, it’s best to search for free money before spending from a college fund or applying for loans. That’s because scholarships don’t require repayment, and you can apply for as many as you like. Start by finding a top-ranked search-and-apply website that has features like easy searching, document storage for using essays for more than one application, simple profile building, and filtering capabilities.
The beauty of such a platform is that you can get matched instantly with only those opportunities for which you meet the qualifications. Then, make your decisions about which ones to save, store, delete, or put on a priority list and apply for immediately. Platforms that offer those features can help anyone find available scholarship money efficiently and effectively.
Once a company is off the ground and has a few customers in its portfolio, there’s a need to pay for daily operations. In general, this money comes directly from current profits and cash flow. It’s best to avoid borrowing to cover everyday expenses unless your income is seasonal. Many owners borrow during a slow season and repay small loans in full once business picks up in later months. Micro companies tend to live off their cash flow, which is a dangerous way to operate. But for some, it’s the only alternative until they’re able to build up a larger client base.
The lucky companies live long enough to face expansion needs. That often means more office space, additional employees, new equipment, and larger inventories of goods. The most common way entrepreneurs cover these costs is through traditional bank loans or with company cash in set aside accounts designated for future expansion.
Advertising is a quirky expense because it requires large outlays of funds in advance before owners can measure the effectiveness of the payments. However, many businesses take advantage of low-cost advertising and promotional opportunities like putting on local charity events and creating viral videos that feature company products and services. The most frequent way to pay for advertising and promotional campaigns is with current profits. Some companies create special savings accounts and contribute to them for a year or more to cover expenses associated with an upcoming marketing effort. Television, online, radio, billboard, and other forms of advertising can be pricey propositions for new and small organizations, so owners need to be ready to borrow if the need arises.
Research and development expenses for creating a new product are among the costliest efforts of all. It’s common for organizations to spend several years researching, designing, testing, and producing a new product line. The payoff can be substantial if all goes well or devastating if demand never materializes. Entrepreneurial teams routinely turn to traditional bank or small business loans to cover the costs of developing a new product or service.