Sources of Personal Financing for a Business

Personal financing for business is a form of financial planning and self-funding through established personal and familial connections in addition to individual contributions. According to research conducted by fundable, the majority of startups are self-funded, either through family, friends, personal savings, and lines of credit.

Self-funding, also known as bootstrapping, is synonymous with maximizing human capital first before utilizing the self-generated funds. This is meant to reduce dependency on external financing and improving the efficiency and resourcefulness of the business. Besides promoting self-reliance, self-funding is also strategic for maintaining ownership and control in a business. Below are sources of personal financing.

Personal Savings

Using personal savings to finance a business venture is a cost-effective method that comes with no interest or other added costs. In most cases, personal savings only cover part of the funding required, but there is reduced risk.

Funding a business with personal savings eliminates any form of repayment schedules associated with other methods, allowing you to develop your business without financial strain. Personal savings are available in different forms, such as; cash, checks, bonds, and liquid assets. This financing method is suitable for funding small businesses with manageable costs and risk factors.

Personal Credits

This source of self-funding refers to taking a personal line of credit to finance a business. There are several different avenues of acquiring credit, ranging from family and friends to various financial institutions. Some of the available credit options include; borrowing from peers, personal loans, a home equity line of credit, mortgage and borrowing against life insurance, and investments.

Credit funds issued to entrepreneurs are limited based on their creditworthiness and security or collateral. Weighing the risk factors, some financial institutions offer home equity loans and second mortgages to add to cash flow. Another credit option that’s also available to some entrepreneurs is special business loans offered to specific target groups.

Self-funding through credit does carry risk, especially with collateral requirements and periodic repayments. To qualify for a line of credit, you are required to have a decent credit score and a clear business plan outlining the payment plan.

One of the critical factors in choosing personal financing is the vastness of untapped resources that won't burden the business. These funds are essential for acquiring new investments, purchasing inventory, and consolidating debt. One of the main advantages of self-funding is the self-awareness imposed on you towards managing finances and putting in place contingencies. Bootstrapping is an effective way of funding your business venture if you're not prepared to take on unnecessary business liabilities.

Take Steps to Look After Company's Money Better in 2020

Money is so important in the modern world, and sensible money management needs to be at the top of your list of things to sort out for the new year. There are so many financial obligations and responsibilities to think about this year, and you need to have some kind of system in place that allows you to deal with this as much as possible. You have lots you can do to help you make the most of this right now.

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So, you need to do as much as you can to make the most of your financial situation. As a modern business owner, it is imperative that you keep a handle on your money, and do as much as possible to find the right way to manage funds. Strong finances are crucial for helping you to progress and improve as a business, and achieve the success you need in the future. 

Hire an Accountant

One of the most important things you should look to do is to hire an accountant for your business. There are so many great benefits to this, and it is something that can play a really big role in taking the company forward financially. With the right accountant on board, it is significantly easier to take charge of your money. What’s more, they will be able to provide you with tips and expertise when it comes to making the best financial decisions and helping your money go further. 

Save More Money

Saving money as a business is one of the most important things you can do, and this is certainly something that you need to make sure you work on. There are a lot of things that play a part in the process of saving more money as a business, and one of the key things you need to work on is looking at how to free up cash so you have more to save. This can be tricky and you need as much help as you can get when you look to do this. But things, like reducing spending and making your business leaner, can really go a long way toward helping with this as a business owner.

Remember That There is No Quick Fix

One of the most important things to keep in mind is the fact that there is no real financial quick fix. A lot of entrepreneurs these days like to try to find some of the best ways of making or saving money quickly in order to get to the financial situation they want to be in. This often involves thinking to yourself about things like why my 401k isn’t growing, or how I can increase my business profits. The best thing you can do is to understand that there is no quick fix when it comes to any sort of finances, business included, and this is something to keep in mind. 

Watch Your Overhead

When you run a business, one of the most important things you want to keep in mind is that you are going to have a lot of business overhead. When it comes to overhead, these items refer to any of the key costs that are going to play a part in helping you run your business successfully. Make sure you focus on understanding the different overhead costs that are going to play a role in helping your company grow and improve. Then you can prioritize the different costs that you might be looking at, and be more organized as a business.

Finance the Business

There are a lot of things you are going to need to look at when it comes to financing your business. Try to make sure you think about the best ways of funding and financing your business, and the different ways you are able to achieve this. There are a lot of things you need to think about when it comes to financing your business, and there are a lot of options to consider here, such as approaching investors and applying for business loans. Getting the right funding for your business is really important, and this is something you need to get right moving forward right now. 

Draw Up a Budget

One of the best ways of being able to improve your business finances is to think about the steps you need to take to manage your money better. The best way of being able to do this is to draw up a budget so that you can see clearly where you are spending money, as well as what you are going to need to do to cover these costs every month. Making sure you draw up a budget and keep a record of everything gives you better focus, and makes it much easier for you to work out where your money is going, as well as how you can make it go that little bit further as a modern business. 

Try to Go Green

Going green as a business is one of the best things you can do if you are serious about looking after your money better. There are so many ways in which being more eco-friendly can help you as a business. There are a lot of things you have to make sure you focus on to make your company greener, and things like solar power, eco-friendly lighting, recycling, and digitizing the company can all help you to save money in the process.  

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When you are taking charge of your business finances, you have to make sure you do as much as possible to find the right way of doing things. There are so many considerations you are going to need to make as a business owner, and you have plenty of things that will allow you to improve your financial situation. Make the most of this and you are going to go a long way toward helping your business grow and improve in 2020.

How Can You Deal With These Common Financial Issues?

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Money is something that just about everyone spends a decent amount of their time thinking about. Even if you're not that interested in becoming wealthy, there's no denying that money is one of the things that dictates just about everyone's ability to live their lives the way that they want to. Because of this, the idea of getting into any kind of financial difficulty can be incredibly scary for a lot of people and a source of serious stress. In order to make sure that you don't end up getting into any serious trouble, here are some of the most common reasons that people end up with money troubles, and what you can do in order to avoid them.

A household emergency

Your home is supposed to be the place where you feel the safest and most comfortable. Because of this, something happening to disrupt that safety can be incredibly traumatic. Worst of all, it can have a pretty serious impact on your finances. The best way to prevent this is to make sure that you know exactly what it is that your home insurance covers. Many people assume that things like damage to the contents of their home or something like flooding will automatically be covered, but many insurance companies don't include those things as standard.

Because of that, it's important that you make an effort to find out exactly what it is that your insurance covers. Sure, a more thorough insurance policy might be a little more expensive, but it's nothing compared to what you could be paying if something happens to your home and you're not properly covered.

Accident or illness

Your finances aren't usually the first thing that you think of when you are in some kind of accident or when you become ill. However, it's important to understand just how much of an impact these things can have on your finances. They can make it difficult for you to work which can leave you in an unpleasant position overall. That being said, it's important to understand that there are ways to mitigate this. Speaking to someone like a personal injury attorney can allow you to hold whoever was responsible for what happened and get the compensation that you deserve. You might want to think about these kinds of things when you're ill or when you've been in some kind of accident, but it's important not to let the situation get even worse.

Carelessness

This is the most common reason why many people end up in financial difficulty. Sure, things like household disasters and illnesses can cause a sudden drop in your finances, but the vast majority of the damage is done over time, bit by bit. A little bit of spending here and there might not seem like that much of a big deal, but that spending is going to add up incredibly quickly, and before you know it your bank balance is looking empty. The best thing to do is to create a clear household budget and make sure that you're always keeping track of exactly how much money is in your account at any given time.

A lack of help

One of the most common mistakes that a lot of people make is that they assume that they need to take care of their finances entirely on their own. However, working with the right people can make a huge difference when you're trying to figure out the best way to treat your finances.

The first step is to find the right bank. Somewhere like Merrick Bank has over 3 million customers, which gives a strong idea of how much help and support they can offer. From taking out a loan to arranging an overdraft, your bank can make managing your money a whole lot easier.

The reality of trying to avoid money troubles is that you've got to be willing to pay close attention to your finances at all times. A lot of people have a habit of trying to bury their heads in the sand and avoid facing up to the realities of their finances but this almost always just ends up making the whole situation worse. You need to pay close attention to your bank balance as well as how much you have coming in and out. Otherwise, you could wind up making uninformed financial decisions which can make cause some serious problems for your bank balance and for your life as a whole.

How to Manage and Keep Your Small Business Finances in Order

By: Barbara Davidson

Being the boss of your own company is a milestone, but it also entails being vigilant as you manage all the moving parts of your enterprise. As a small business owner, it pays to be smart about your finances. Before you become stable in a competitive landscape, you’ll first have to map out the road ahead and secure your financial standing.

Small business budgeting is one part of the equation. Successful entrepreneurs know when to cut back on expenses and invest in others, when to negotiate, and when to sit back and watch the money grow. Whatever venture (or adventure) you find yourself in, it’s bound to be a learning experience. 

Are you ready to embark on your journey as an entrepreneur? Here are 12 tips on how to manage and keep your small business finances in order. 

1. Set clear financial and strategic goals

It’s one thing to plan the day-to-day operations of your business; it’s another to set a clear vision of what you want out of your investment in the long run. Don’t lose sight of your future success simply because you’re caught up in present-day hustles. 

Be sure to identify growth targets and the metrics that will define your success. Set a goal and timeline. For example: becoming a half-a-million-dollar company within three years. This will also help you create a strategy for seeking additional funding, building out your product line, or marketing extensively.

2. Plan for expenses and keep costs to a minimum

Knowing the nature of your industry and the demands of your business right from the start will lead you to better financial decisions. Identify production, operational, payroll, and marketing costs, as well as some contingencies, and plan for them at least a year in advance.

Learn to keep costs to a minimum by spending only on essentials and negotiating the terms of your contract with suppliers, partners, and affiliates. Develop a budget that accommodates these expenses even in lean months. It also helps to make financial forecasts by factoring in possible challenges ahead.

Look at certain expenses and what you could bring down. For example, you might want to look at the cost of your business phone or phone and get a better smartphone deal. Paying too much on your phone contracts is burning money.

3. Separate business and personal finances

A rookie mistake that small business owners tend to make is to mix up their personal and business finances. Failing to open a separate business bank account can prove disastrous if the cost of doing business begins to strain one’s personal finances. This typically happens among sole proprietors who invest their own money into a business without accounting for how much the venture is actually eating into their personal savings.

4. Get an accountant and an accounting software

Getting help from an accountant is an essential part of your business strategy. You wouldn’t want to lose time and be stuck doing invoices and calculating taxes instead of growing your client base or product line.

But if you prefer to do things in-house (and have a bit of leeway, too), then getting an accounting software is another option for your team. Automated features in these software solutions reduce the incidence of human error.

5. Monitor your finances closely

Be vigilant about where your financial resources go. Keep tabs on important factors such as gross revenue, expenses, net profit, and cash flow. Even the most lucrative businesses can run into trouble if they overlook loopholes in their financial management.

Using apps and software programs to help you keep an eye on your finances is important, especially if you are not an experienced accountant. An online percentage decrease calculator, tax software, and other help are available online and can benefit a business of any size. 

6. Be wise about applying for credit or loans

Don’t wait until the rainy days to secure funding through credit lines. You are more likely to get approved while you are in good financial standing. Applying for a loan or credit should always be a strategic move: remember to use the additional resources as leverage for the business to grow.

7. Be strategic in your spending

When resources are tight, small business owners are often forced to cut back spending on non-essential items and redirect funds to cover more urgent expenses. Most entrepreneurs will choose to part with their dime if the cost will directly or indirectly lead to the business becoming more profitable because of it. For example, spending on top-of-the-line technology that will outlast cheaper options and deliver the best use value in the long run.

8. Negotiate the terms of your contracts

Being a small business owner requires you to be able to strike good deals with a host of suppliers, partners, and affiliates. Before negotiating a contract, decide on the terms and conditions, such as lease terms, payment options and schedule, handling costs, and possible penalties for late payments. Find out if you can also get a bargain on exclusive partnerships and promotional deals with suppliers. Aim to keep costs low and get the best value for your money.

9. Get insurance

Small businesses can benefit from having insurance if they ever run into misfortune or tragedy. A good policy will cover the costs associated with property damage and the legal claims made against the company. Disasters can leave tremendous financial consequences on a business, so entrepreneurs need to know the type of insurance their business needs. It’s all a matter of preparing for the worst since, in the absence of coverage, business owners might end up paying for costs out of pocket.  

10. Invest in cybersecurity

Hackers and fraudsters are hungry for customer and financial data—and they’re eager to exploit any business regardless of their industry and size. Companies must set up their protocols and ensure digital security even before an incident occurs. Investing in firewalls, anti-malware, and threat detection tools should be part of the business plan right from the start since the financial and reputational costs of a data breach can cripple a small business.

11. Set up an emergency fund

Apart from raising capital and ensuring revolving funds cover operational costs, small business owners should set up a separate emergency fund that will help them stay afloat even during lean months. Companies that rely on seasonal sales will often prepare for the off-season by putting aside a percentage of their income in months when the business is booming.  

12. Pay down your debt

Make it a point to reduce the size of your debt by allocating a percentage of your earnings toward debt repayment. Falling behind on your payments can leave you with a bad credit score and lock you out of additional sources of funding, which may be crucial to your business. Being financially responsible entails keeping a good credit score and ensuring bad debt doesn’t carry over to the next fiscal year.

Taking charge of your finances is the first step to ensuring the future of your small business and paving the way for its eventual growth.

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Barbara is a Senior Content Writer at Enova International and a contributing writer to various business and finance blogs.