It doesn’t take money to start a business. You can start one with just an idea and a free blog (like here on WordPress).
However, it does take capital to run a business. Starting and running are two totally different things. My job (or hopefully, my job) is to help you outline and plan for a way to not only raise the capital you need to run your business, but also to do it in a way which is sustainable.
Simply, there are four avenues to raise capital.
3. Prepayment for product
Let’s take these one at a time. The first two are pretty easy and self-explanatory.
1. Gift – someone loves you enough to hand you a briefcase full of cash. There are IRS tax limits (of appx $14k/year on this I think -per person). We all hope we can be loved this much.
2. Loan – Also a legitimate way to go. You can do private funding (meaning taking a personal loan from a friend or family member) or go the traditional route of financing through the bank. This isn’t quite optimal as you would be starting your business “under water” and would be playing catch-up over the next 3-5-10 years (or whatever the term of the loan is). Even at 3%, that is money which could have been put to good use else-where.
3. Prepayment for Product – This is where things can get interesting (and super exciting). This is, effectively, how Kickstarter has set up their funding model with the added bonus of “crowdfunding” which is basically, leveraging your contacts for greater exposure.
The downside of Kickstarter is “all or nothing” – either you meet your goal and get the money, or you don’t and won’t. AND – you can’t do business funding through Kickstarter (as they specialize in creative endeavors). BUT -> I get super excited about this model because it is equity-based funding for business (rather than the usual debt-based business funding like Option#2). The technical term is “Private Issuers Publicly Raising” or PIPRs (as allowed under Prez Obama’s 2012 JOBS Act). It’s sort of the “wild-west” out there in terms of business funding, but because we are on the forefront of this movement, the horizon is limitless! It’s very, very, exciting.
For example: We can do an “initial offering” or start-up capital run, and set up levels of donation with special rewards, products, prizes and so forth. We can have a “launch party” with silent auction, raffle and marketing event which could kick-off the fundraising efforts. From there, get a video pitch for online donations and set up the levels similar to how Kickstarter runs and we would have to think of the special rewards for each level:
$25 donation =
$50 donation =
$100 donation = …
$250 donation =…
$500 donation =…
$1000 donation =
$2500 donation =
This also brings up a conversation of logo branding/marketing = T-shirts, website, stickers, business cards and… LOGO! I am always super excited for the “launch” of the logo.
4. Equity investing is simply getting shareholders for your idea or business. We set it up as an S-Corp, issue shares at a price and open it up to investors. This would include regular board meetings a few more regulations, but also a very legitimate way of getting funding for expansion or business capital. This is also a good way to “go into business” with friends/family. They have a legitimate stake in the success of the company and are issued shares (and responsibilities).
I hope this helps you if you were thinking about a business opportunity.