When we speak about the term “small business or startup”, what usually comes into our minds are new concepts. The business is just small and hence the term “startup”. But there are several other options to describe this concept. In fact, startup and small business are concepts that cover almost all aspects of business. It doesn't matter which type of business we want to talk about, starting or growing a business is a long process. Just as all other things, even startups, need capital for their growth and development.
As we said earlier, there are different terms for the different types of startups. But the common aspect for all of them is that they're all about business growth and development. A good example would be Amazon – a popular online retailer. Even though they started as a bookstore, they have expanded so much that they are now selling almost anything you can imagine.
For most small businesses, the idea of making an income statement is not a part of the process. So what happens? Most startups have no income statement. But before looking at the financial aspect, it is important for you to have a good look at the business plans. Usually, these plans include a market analysis report, a cost analysis report, a business plan, an operations review report and a customer feedback report.
After looking at all these things, a successful startup needs a financing strategy. And in order to start small businesses, most startups need to raise funding from angel investors or venture capitalists. However, it's not easy for startups to raise capital from angel investors or venture capitalists. Well, not impossible. You can do it with some help. Companies that are looking for small businesses to fund generally recommend going to angel investor groups.
Most investors in the startup stage do not like taking risk. But if a startup company has a strong market, good products, a great value to the customers, and is able to continuously create new products, and drive sales, then the entrepreneur may find himself/herself with enough investor confidence. In other words, there is a possibility of achieving positive results for the startup. And this is where most small businesses owners are confused.
Small startup companies need to raise capital from venture capital firms, angel investors, or local banks. It's not recommended for startups to seek funds from the government. Why? Well, because government funding sources rarely provide a good return on investment.
Government funding sources usually concentrate on large-scale corporations and industries. And they are not likely to provide grants for small businesses and startups. But here is the one exception. Small companies may receive some small business development loans from the federal Small Business Administration.
A small business development loan can be used to fund various activities, such as improving marketing strategies, staffing, and technology implementation. Also, the loan amount depends on the startup's income statement and cash flow statement. Usually, venture capital firms perform a credit check on the company. If you have a poor credit history, you may have a difficult time getting approval from venture capitalists.
On the other hand, if your company has a good but not spectacular income statement and/or cash flow statement, you can have a great chance of getting approval. To improve your chances, you have to prepare well in advance the entire financial statement and performance analysis. Prepare thorough accounts receivable and inventory history as well. Include accurate identification of all your assets, liabilities, revenue, and expenses.
Startup companies have to follow certain guidelines when seeking startup capital. The most important one is that they have to convince potential investors that their business will have potential value in the market. They also need to provide strong business plans with realistic forecasts. Finally, they need to convince lenders that they are in an excellent position to pay back the investment in full or within a short period.
It's hard to start a small business. However, it is not impossible. There are several small businesses that have achieved success without having any previous experience. You should try hard and be patient.
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