How to Launch Your Start-Up Business

by: BMA Editorial Team 3

Starting your own business can be a dream come true - but sometimes that dream can become a nightmare if you do not know the risks associated with business start-up funding. If you want to cover your new business interests and "assets" then you need to know the disadvantages that come with different borrowing options.

The disadvantage of bootstrapping is a lack of capital - unless you're already rich! That lack of capital can be a significant constraint and if you can't afford to keep the business moving forward, you're facing trouble. Unfortunately, first-time bootstrappers seem to under-estimate what things will cost so they misjudge their business start-up funding needs.

There is a downside to removing funds from a 401K or similar type of account. That's because it often carries penalties for early withdrawal and it's not uncommon to lose a portion of that money as part of the withdrawal penalty, in addition to having to pay taxes on the amount used. Using your 401K for your business start-up funding is a serious consideration and one that you really need to weigh all of the pros and cons and how they will impact you long term.

Using a personal credit card for your business start-up funding is easy - but easy does it! Later, adding new business credit card accounts will be encouraged (we all get those in the mail) and can be opened to cover the ongoing financing challenges. Be warned, varying interest rates and high credit limits can cause your debt to pile up, making it hard to climb out of that financial pit. Even credit cards that promise a low, introductory rate can quickly rise, especially if you are late on just a single payment. If credit card debt continues to build and you're late on payments, it will negatively impact your personal credit rating, which will make it more difficult to secure other funding options in the future.

When using your Home Equity, this type of loan comes with a floating interest rate and a large balloon payment. Should the housing market suddenly shift and interest rates soar, you may be unable to make the rising mortgage payments. If this happens, you risk losing your home. Again, like the 401K, you should weigh the pros and cons and long term impact on you and your family if you are considering this option to gain business start-up funding.

The downside of bank loans and credit lines are - in addition to needing a solid credit history to even get the loan - you must keep up with your regularly scheduled payments. Since small businesses and considered "high risk" by most financial institutions, they will monitor your business progress - or lack thereof - very closely.

Are you currently in the process of trying to start your own business? If so, have you developed yourself a business plan yet? Each year, a relatively large number of individuals try and start a business.

Despite wanting to start a business, there are a large number of individuals who do not end up doing so. One of the reasons for that is not having a business plan. That is why you are advised to have a some type of blueprint. In fact, you will find that there are a number of benefits to doing so.

Before examining the benefits, it is best to examine exactly what business plans are. While business plans do come in a number of different formats, you will find that they accomplish the same purpose. That purpose is to give a clear idea and plan as to exactly what your next business venture is or will be.

For example, if you are interested in starting your own storefront retail store, your plan will likely include the intended location, what type of items you will sell, the hours that your store will be open, who your customers will likely be, how you will target your customers, and where your financing will come from. Although a retail store was used as an example, all new entrepreneurs are urged to develop a plan.

One of the greatest benefits to having a business plan is that you will know what you need to do to get your store up and running. For example, if you know what type of customers you will be targeting and how, you have a better chance of becoming profitable. In a way, a business plan also doubles as a to-do list. It will help to make sure that you do everything that you need to do or everything that you planned on doing. It is a great guide to follow.

Another benefit is that it may help you obtain financing. If you you do not have the financial resources needed, you will need to seek financial assistance. This assistance almost always comes from financial lenders or investors.

The thing about financial lenders and investors is that they want to make sure that they will be able to get their money back; therefore, they want to back a business that is sure to be a success. If you do not have any experience, a business plan will need to do all of the speaking for you. It is really the only way that a financial lender or investor will be able to tell if their money will be used for a successful operation.

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Date: 2015-01-29; view: 829