Starting a business can be difficult. The reality facing all business owners is that a market of individuals must like and, ultimately, support your product or service through their patronage.
Let’s face it – to start, you need logos, websites, office space and office supplies. Eventually, you will need to buy inventory, hire employees and advertise to win customers. This all requires money!
An overwhelming majority of small businesses fail and one of the biggest reasons is a lack of capital. There are three major ways to bring capital or money into your business:
- Investment capital
- Bank or business loans
- Sales and company revenue
ABC’s Shark Tank features entrepreneurs from across the country pitching five very successful entrepreneurs (The Sharks) for the hope of winning an investment. The Sharks are essentially venture or angel capital investors because they invest their own money and provide expertise in exchange for equity in the entrepreneur’s business.
One of the disadvantages of relying on outside funding is you need to convince someone to invest their personal assets into your business. The process often requires you to know someone or have an existing relationship with a private investor. Secondly, investor capital is most expensive, often requiring to give up some portion of your ownership rights in the business.
Bank or Business Loans
Bank and business loans can be a great way to capitalize and grow your business. For example, you may need to hire an employee but your current cash flow may be tight because you are waiting to be paid by a customer. In that case, a bank loan or line of credit could be very useful for meeting your company’s payroll.
For example, one of the advantages of a business term loan is that you can pay for a new piece of equipment over a longer time period generally at a fixed rate of interest for the duration of the term of the loan. On the other hand, a line of credit can be useful if you are looking to meet increased temporary working capital needs that are seasonal in nature and your business will be able to pay it back in a short period of time. The line of credit allows you to borrow the amount you need and pay it back when your business cash flow improves, however, the outstanding borrowed amount incurs interest cost that is generally a variable rate of interest.
Additionally, it’s in the best interest of your bank or lender to work with you to solve your cash-flow challenges. Your business and banking relationship can be strengthened by working closely with a banking professional.
Sales and Revenue
Sales and revenue are the most important areas of focus for your business. Self-sufficiency in your business should be the goal and sales/revenue can help you grow to self-sufficiency quickly. The first two ways to bring money into your business (investment capital and bank or business loans) support the goal of growing your revenues.
These three important ways to bring money into your business should be used in conjunction with your business needs. Learn more about how to raise capital for your business.
- Credit and Lending Resource Center
- Get answers and information about business financing
- Find the right financing for your business
Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.
Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.”
Ebong is also the founder of The $250 Tax Pro, which provides tax preparation and consulting services in the Washington, DC area.
Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.
Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation