When you’re embarking on a new project for your business - whether it’s opening a new location, upgrading equipment, or trying out a new marketing strategy - you’re going to have a lot of questions. First of mind is, how much is all of this going to cost?
Here are some tips on how to determine how much funding your small business needs - and some ideas of how to get that funding!
Define Your Business Goals Clearly
Start by identifying the exact purpose of your funding. Is this seed money to get your business started, or are you trying to purchase something specific, like new equipment? Or, are you looking for funding to hire new employees?
First, write down what you want to achieve with this project - do you want to increase revenue, get customers involved, or improve your operational efficiency? Great - now how do you want to get there?
Having these specific goals is crucial because it helps you estimate costs and communicate your needs to lenders or investors.
Create a Comprehensive Budget for Your Project
A well-detailed budget is your roadmap for determining how much funding you need. It’s nobody’s favorite task, but trust us: you’ll thank yourself for it!
First, do your research. Break down your expenses into categories like fixed costs (rent, equipment purchases) and variable costs (staffing, marketing spend). Don’t forget a contingency fund - once you come up with the budget add a 10-20% buffer. This is especially important if your project involves construction - there are always extra costs involved.
Differentiate Between Short-Term and Long-Term Costs
Going along with the necessity of budgeting, it’s important to separate one-time expenses from ongoing costs.
Short-term costs are going to be those upfront costs such as for your renovations, equipment purchases, or one-off marketing campaigns.
Long-term costs are recurring expenses like increased payroll, utilities, or software subscriptions. As you grow, so will your expenses, so adjust accordingly!
Knowing these costs will be critical in helping your business grow sustainably.
Evaluate Your Current Financial Health
It’s time for a check-up. Understanding your business's current financial standing is essential for determining how much external funding is necessary.
Take some time to review income statements, balance sheets, and cash flow to assess how much capital you can allocate from your existing resources.
This analysis can also guide you in choosing the right funding option, whether that’s a business loan, line of credit, or investment.
Having all the right documents in one place will also make it easier to get a loan or investment - everyone has their due diligence to perform, so you can make the process go a lot more smoothly and quickly by knowing where you’re at financially.
Calculate Your ROI (Return on Investment)
This is the fun part - how much money are you going to make on this investment?
This is where you get to estimate the revenue increase, cost savings, or efficiency improvements your project will deliver. Use these projections to determine whether your funding needs align with the potential benefits, ensuring a worthwhile investment.
These numbers are especially important to investors - they want assurance that they might get their investment (and interest or equity) back, so providing these details can help them make a decision.
Where to Get Small Business Funding
Once you know how much you need, explore the best funding sources for your situation:
Small Business Loans
An oldie but a goodie. Small business loans are great for fixed, large-scale investments like purchasing property. However, they can take some time and can be picky on what kinds of businesses they choose to fund.
Line of Credit
This is a flexible option for smaller and more variable expenses like marketing campaigns or purchasing more inventory.
Crowdfunding
This is a great way to get funding, engage your audience, and build buzz around your project. There are even investment crowdfunding platforms such as Honeycomb Credit that allow your customers to invest in you, starting at just $100!
Once You Know How Much You Need, Let’s Get to Work!
Honeycomb Credit can be your one-stop-shop to get the funding you need to grow (or start) your business. Get the funding you need with your community at your side. To learn more, fill out the form below!
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