No one likes to talk about money when it comes to starting a business, but it’s the elephant in the room because you need money to make money. Finding investors is one approach, while others need to apply for a business loan. Funding your business is like putting the right kind of fertiliser around a tree when you plant it, it builds strength and resilience so that the first obstacle doesn’t defeat the business. With uncertainty in business in the wake of COVID and the subsequent lockdowns, having sturdy financial backing is even more important than ever before.
The truth around business funding isn’t always popular because it comes with a tremendous amount of accountability. You have to do things by the book to qualify for funding, and this can be very hard work. However, you can see the importance of solid financial backing by the following statistics.
- Consider that 90% of small business failures are due to poor cash flow, according to the Small Business and Family Enterprise Ombudsman.
- Also, more than 60% of small businesses cease to operate within 3 years of opening, according to the Australian Bureau of Statistics.
- Lastly, consider that almost 50% of small businesses are under financial pressure within the first year of starting, and this only increases in years 1-3, according to ATO New Small Business Education Research.
These statistics affirm that funding your business from the start is imperative.
Many of these businesses don’t start with adequate funding, understandably, it is a struggle to get funding from banks when they have no trading history to support the application. This is why starting a business is so difficult, especially if you want to start on a strong foot and ensure you survive those first years.
The quickest and easiest way to fund your business in the early years is through personal savings or by unlocking the equity in your home. If you are lucky enough to get a business loan, it will very likely require a personal guarantee.
The fact is that you need to back yourself before a bank will. It is ironic, it may feel as though you need to prove you don’t need the loan before you’d be allowed to have it. Approach the affair with practicality and be prepared for a pay cut when you start your business, this is simply the nature of going into business, most successful entrepreneurs took a pay cut when they started their venture.
You need to manage your personal expenses while you get your business up and running and be prepared to make some sacrifices. Starting a business is similar to having a baby, it has needs that call for financial input, it requires your time and energy and it asks for sacrifice and nurturing. If you’re willing to put your business ahead of yourself, it will grow into a sturdy and resilient support system that nurtures your needs.
Business funding and finances can be tricky to understand. Many entrepreneurs are overwhelmed at the reality of working in their business, improving their product or service offering, as well as working on the business, bringing in new clients, managing the finances and navigating the marketing aspects. Remember, your accountant is here to support and advise you, not just to handle your taxes.