Guide to Financing a Startup

Other people's money (OPM) could be the ticket to business success

By Jackie Larson

Preparation is vital. You'll need a sound business plan and a strong presentation to sell it to others. Here are three steps to financing your startup:

1. Determine how much money you need to start your business.
2. Find a funding source to get your business off the ground.
3. Make sure the business will work so you can pay the money back and turn a profit.

Action Steps
The best contacts and resources to help you get it done

Put together a plan

Have a clear, workable business plan in place before you seek funding. Banks, angel investors and even Uncle Joe will want to know you can handle their investment wisely.

I recommend: Access free business plan templates at SCORE. Take a free online workshop on analyzing your financial ratios from Regions. Fill out an online questionnaire at Business Finance to get a list of possible funding sources.

Finance yourself

By keeping your budget lean, you effectively decrease the amount you need to finance. Leverage assets you have access to.

I recommend: Trim any costs that aren't essential to your success using these guidelines from More Business. Consider some of the self-financing options at StartupNation.

Get Uncle Sam's help

There is government funding available, although it may take some digging to find the right program and get paperwork in order.

I recommend: Review the top Small Business Administration funding programs. Download an application for an SBA loan. Use this checklist to make sure you have all the documents for an SBA application.

Small business investment companies

Are you willing to give away a piece of the pie for some investment from the outside? While angel investors help with the early stages of startups and bring advice and credibility to a project, venture capitalists will expect you to have a start already, with a working product.

I recommend: Download a list of SBA-certified small business investment companies, organized by state. Browse Inc.'s directory of angel networks and in-depth profiles of angel investors. Register your business plan and find venture capitalists and angel investors at Funding Universe. Search for venture capitalists at Go Big Network.

Do the math

Before you sign on the dotted line, calculate as many costs as possible, and compare them to your projected revenues.

I recommend: Use this free online calculator from Business Know-How to figure your initial startup costs. Check out a free demo of Return on Investment Solver software. Test your financing IQ with a quiz at SBA.

Helpful advice for making the most of this Guide

• •  Look for ways to reduce your living expenses. It's like giving yourself a loan you never need to pay back.
• •  Just because someone is willing to finance you doesn't mean you should spend all the money. Make sure your plan works, or you'll find yourself unable to repay.
• •  Look around for unusual incentives, such as a free building in a town that wants employers to bring in jobs.
• •  There will always be unforeseen expenses so budget extra to have a cushion.