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What Kind of Financing Do I Need for My Business?
Making money is usually the primary purpose behind becoming a business owner. While there are never any guarantees for success, what is all but guaranteed is that you’ll need to spend money to make money, and usually a great deal of it. But what sorts of things will you be spending your financing on?
Hiring and Employee Costs
Unless you’re running a business as a solopreneur, you’ll need to hire and pay people to work for you. Whether you choose to hire employees or independent contractors is up to you, but regardless, you’ll still need to pay them. A lot of attention has been given lately to paying a living wage. Chances of you getting away with offering potential hires much less than they are far smaller than they used to be, so you should definitely plan to set aside a decent portion of your budget to pay them.
TIP: You can make hiring decisions without committing to them by choosing a part-time or freelance contractor rather than an employee. This will allow you to test the waters with someone before bringing them on for good, giving you more time to plan your next steps. Depending on the length of commitment you want them to sign up for, this could range from one week up to several months.
For financing purposes, here are some numbers that may help you get started planning: $15 per hour x 40 hours = $600 every week (a full-time hire should aim for at least this much), and $30k per year x 2080 work hours in a year = $61k per year (a full-time hire should aim for at least this much).
The equipment you need for your business will depend heavily on the industry and what you do as a business. Depending on the time of business and what equipment you already have, your startup costs may vary. Unless you’re already fully outfitted somehow, though, you’re going to need to come up with the money to equip your business. Depending on the cost of all the equipment you need, a business loan or business credit card may be good options to cover the expenses.
There are different types of business loans, including SBA loans, merchant cash advances, and bank loans. There are pros and cons to each type of loan, so it’s important to research which one works best for your business needs. Whether you choose a traditional loan or an alternative financing option, you’ll have to show the lender how much money you need for equipment along with your other financial documents. You should also expect to pay interest on these types of loans.
A business credit card is another good way to finance new equipment for your company. Many companies use personal credit cards at first when they can’t get any other type of financing, but eventually, switch over their line of credit Equipment Costs
Generally speaking, brick-and-mortar businesses tend to lease their locations, instead of buying them in a traditional sale. A typical written commercial lease in the United States is a five-year contract with an option for another five years after that. You can expect monthly payments will vary depending on location cost, length of the lease agreement, and other factors.
You’ll need to factor the monthly cost of rent into your business budget. You’ll also need to plan for the cost of utilities for your building. Water, gas, electricity, and the internet are a few examples of utilities you should expect to pay for. Even if you don’t have a brick-and-mortar business, you’ll still need to budget for location costs, after a manner of speaking. After all, running a quality website doesn’t come free. There are plenty of expenses associated with running a website that you’ll need to account for as well.
One of the best things you can do when you’re getting your business set up is to figure out what you’ll need to spend money on and how much. It’s not just something to do in the beginning phase of a business either. Knowing where your money goes will be crucial to your ability to set up a realistic budget and successfully follow it.
Looking for funding solutions for your business? Let us help you!