Guide to Financing for Early Stage Entrepreneurs - vector image of watering a flower pot of coins symbolizing financial growth

Our Guide to Financing for Early Stage Entrepreneurs

As much as we’d like to say otherwise, starting a business takes far more than simply having a great idea. You can have all the enthusiasm and passion in the world, but without proper funding, it’s unlikely your business will ever make it out of the starting stages.

Don’t worry, there is hope! Getting creative with your funding efforts can yield some surprising results and give you that cash injection you so desperately need.

Why is Financial Support Important for Early Stage Entrepreneurs?

The stark reality is that most startups are never funded, but it’s not usually due to the lack of effort in trying to attract investors. Lenders and investors are unlikely to give you a second glance if they feel your idea is too risky or if your credit score is less than perfect.

Without financial support, it’s nearly impossible to get your business up and running properly. Or, you may find you can set up the business in part but find you have to cut corners to make ends meet. This can be highly demotivating and stressful and leave you feeling like you just want to throw it all in the can.

Worse still, many entrepreneurs resort to draining their personal savings or taking out personal loans. The result is a very precarious financial situation that can end badly if the business doesn’t go as planned.

What are the Benefits of Financial Support at the Early Stage?

Receiving entrepreneurial finance at an early stage means you can hit the ground running. You’ll have the ability to create a solid base on which to grow, and you’ll have the resources to build a great team of staff. You won’t have to compromise on quality, and you can work to deliver the product or service exactly how you envisioned it.

Additionally, when you receive entrepreneurial funding, you can fully focus on the job at hand rather than spending your days worrying and stressing about how you’re going to pay the bills. You won’t have any requirement or temptation to use your personal finances. This is a huge security net, vital for anyone going through the setup stage of a business.

Can Financial Support Help You Stay Focused on Your Goals?

With the support of entrepreneur finance, you will have the ability to draw up a proper business plan with goals that, with the backing of finance, can be realistically achieved. A clear path in place to meet your goals will allow you to remain focused and give you the drive to exceed them.

Without financing, it’s hard to create any solid goals at all. Without proper milestones and no real way to achieve them, it’s easy to lose sight of why you started the business in the first place.

Motivation and passion are what drive a business to be successful. If someone has enough faith in your business to financially support it, this will likely have a hugely positive impact on your motivation levels.

Gaining capital for entrepreneurship will see your dream become a reality and drive you to exceed everyone’s expectations by pushing the boundaries of success.

What Challenges Do Early Stage Entrepreneurs Face?

There is no shortage of challenges that early-stage entrepreneurs face. Lack of funding and motivation is just part of the whole picture. If you’re to successfully overcome challenges, then you must learn and develop new skills to tackle issues head-on. Here’s what you’re likely to face:

Stepping Out of a Stable Career

Taking a leap of faith is a huge challenge, but you can’t give 100% to your business if you continue to give your attention to other employment.

Making Decisions

This is daunting and stressful because your success hinges on each decision you make. Decision fatigue is real and can quickly wear you down.

Critical Thinking

Obstacles will arrive out of nowhere, and you’ll need to find a way to effectively overcome them without negatively affecting the business.

Being the Boss

Unless you’ve held a managerial role before, being the boss and enforcing rules, and setting firm boundaries can be a real culture shock.

It Becomes Your Life

Be prepared to eat, sleep and breathe your business. Until it’s up, running, and stable, it’s going to command all of your attention all of the time.

What are the Typical Expenses for Early Stage Entrepreneurs?

The expenses of running a business are numerous. In fact, there are probably more expenses than you first anticipated. Here’s what to expect in the startup phase of your business.

One-off costs:

  • Equipment purchases
  • Recruitment fees
  • Commercial building deposits
General running costs:
  • Business insurances
  • Commercial building rent
  • Utility bills
  • Staff wages
  • Equipment rental fees
  • Supply purchases
  • Stock purchases
  • Sales and marketing
  • Software subscriptions and purchases
Professional expertise:
  • Lawyer fees
  • Solicitor fees
  • Realtor fees
  • Accountant fees
  • Third-party service fees

What are the Most Common Sources of Early Stage Funding?

There are a surprising amount of business financing sources. Of course, you have your typical investor funding, but as we discussed above, this can be very difficult to gain for a startup. There are plenty of other avenues to explore, so don’t give up hope. If you’re wondering what the primary sources of funding for entrepreneurs are, here are the most common ones:

Personal Investment

Investing your own capital into a startup is one of the easiest and most uncomplicated routes. Of course, this source isn’t possible if you have no assets, to begin with.

Pros:

  • You are free to use your own money as you choose
  • Investing your own capital can make you more attractive to outside investment
  • You generally have immediate access to your own capital
Cons:
  • It’s easy to overreach and spend more than you have
  • Using your own capital can make you less financially secure
  • Most individuals don’t have the necessary capital available

Venture Capital

Venture capitalists are a type of entrepreneur financier who searches for high-growth potential in certain industries. Therefore, this type of investment is for anyone with a technology-based startup. If your business is based around communications, biotechnology, or information technology, then this could be a good option for you.

Venture capitalists take an equity position in the business to allow it to carry out a project that is promising but high-risk. You will have to be prepared to give up some equity or ownership in your business, and you will be expected to provide a healthy return on investment.

Pros:

  • The money received is yours with no restrictions
  • You often receive extra support as the venture capitalist has a vested interest in your success
  • Enables faster growth

Cons:

  • Only available for certain industries
  • You are required to give up part of your business to the venture capitalist
  • Added pressure to provide high returns

Business Angels

Business angels tend to be retired executives or wealthy individuals who like to invest in startups and small businesses. As leaders in their field of expertise, they often come with an array of support, contact networks, and their own personal experience. In return for the investment, you would be expected to allow the angel to supervise the running of the business.

Pros:

  • A large amount of support and resources are also supplied
  • You still retain ownership of your company
  • Simple to set up with minimal paperwork
Cons:
  • You may not get to run your business how you like
  • It can be hard to seek out a suitable angel investor
  • Investment amounts tend to be lower than other options

Friends and Family

Turning to friends and family should be approached with caution as this option can sometimes cause more issues than it’s worth. However, if it is a viable option, it’s a great – and inexpensive – way to get small amounts of funding.

Pros:

  • A good way to get funding fast
  • Your credit score has no impact on the outcome
  • Repayment terms can be flexible
Cons:
  • If not approached properly, it can cause family arguments and rifts
  • Usually not suitable if you require large amounts of investment
  • The individual may want equity in your business

Commercial Bank Loans

There are a multitude of commercial banks out there offering their own array of different loans. Shopping around to find the right one for your business is a solid approach. However, your business plan needs to be watertight and your credit score impeccable for them to consider you.

Pros:

  • The money is loaned without restrictions
  • Interest rates can be very attractive
  • If accepted, you will receive the funding quickly
Cons:
  • You need a really good track record and credit score to even get through the door
  • You might not get the level of funding you asked for
  • You will require a detailed business plan and personal guarantees

Government Assistance

There are many government grants and subsidies, of which some may be available to you. Check what’s happening in your state to see if there’s anything worth applying for. Bear in mind that competition is fierce, and there are stringent qualifying criteria.

Pros:

  • It’s the least expensive way to receive funding
  • The money is yours to do what you like with
Cons:
  • The application process can be complex and lengthy
  • You have many startups competing for a limited pot of cash
  • You are often required to match the grant amount or put up a significant amount of capital to qualify

Crowdfunding

Crowdfunding has become an extremely popular way to gain exposure as well as capital for your business. It does, however, take a lot of meticulous planning and preparation. Many of your business components, such as branding, website, and products, need to have been developed before you embark on a crowdfunding campaign.

Pros:

  • It’s a low-risk way to gain a high reward for your startup
  • You won’t have to give up any part of your company
  • There is huge potential for increased exposure, additional feedback, and product validity from running a campaign
Cons:
  • The campaign failure rate is quite high as it can be tough to get noticed in a sea of competition
  • There are large upfront costs involved in campaign preparation
  • The fees for using campaign platforms are high and come with strict rules

When is a Professional Needed?

While finance and entrepreneurship go hand in hand, you are not necessarily expected to know everything about both of them. Feeling overwhelmed with all the decision-making is more common than you think, and it’s perfectly normal to have these feelings.

The best way to overcome this is to hire a financial advisor who will have your back when it comes to making important financial decisions. As well as providing basic finance for entrepreneurs, they can also assist you in researching the various funding options and give you confidence when it comes to signing on the dotted line.

Hiring a virtual financial advisor is the most economical way for a startup to get the advice they need. At EvolveCFO, we provide qualified accountants, financial advisors, and more who specialize in the field of startups, new businesses, and funding entrepreneurship.

If you’re ready to take the plunge into funding options, let EvolveCFO guide you every step of the way. Contact us today for a chat.