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5 Important Tips for Startups to Reduce Huge Capital Requirements

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It’s a common trend today wherein people are inclined to set up their own business in today’s startup environment. It is like a fever that is catching up with people. Most of them succeed in their pursuit while on the other hand others don’t even dare to dream. The most common reason for this is money or capital, which is said to be the life blood of any business. Among all other factors, money is a major factor without which no one can think of starting a business. Maybe you have an idea, or you’re just fascinated with the idea of launching and growing your own enterprise. You might also be willing to take some risks, like leaving your current job or going without personal revenue for a while. But there’s one logistical hurdle stopping you: You don’t have sufficient money.

On the surface, this seems like a major problem, but a lack of personal capital shouldn’t stop you from pursuing your dreams. In fact, it’s entirely possible to start and grow a business with almost no personal financial investment whatsoever — if you know what you’re doing.

Why a business needs money

Before considering anything, let’s take a look at why a business needs money in the first place. There’s no uniform “startup” fee for building a business, so different businesses will have different needs. It’s important to first estimate how much you need before you start finding alternative methods to fund your company. Initially, a startup business needs capital to obtain the licenses and permits, to buy supplies & equipment, to rent office place etc. Apart from these costs, it may also need money to pay the fee for associations, subscriptions, and memberships, to pay for salaries of staff and to pay for operating expenses and legal expenses etc.

You might be limited to a strict budget when you want to start a business, but that doesn’t mean you don’t have any option. It is possible to start a business with very little money, if you have the right combination of skills, work ethic and marketing know-how. With that said, you have two main paths of starting a business with less money: lowering your costs or increasing your available capital from outside sources. Below mentioned are few tips that can help those inclined to start a business with little capital.

  1. Reduce your needs: As mentioned earlier, try to eliminate or reduce needs by changing your business model to demand fewer needs. For example, if you are planning to start a company of personal trainers, you could reduce your “employee” expenses by being the sole employee to start with. Unless you need office space, you can work from home. You can even do your homework to find cheaper sources of supplies or cut out entire product lines that are too expensive to produce at the outset. However, there are a few expenses that you may not be able to avoid. Licensing and legal fees will set you back even if you cut back on everything else. By doing this, one can reduce the expenses that allows to start with less capital.
  1. Bootstrap: This option invokes the idea of a “warmup” period for most of startup businesses which came into existence. So, instead of going straight into full-fledged business mode, one can start with just the basics or part by part. You might launch a blog and one niche service, reducing your scope, your audience and your profit, in order to get a head-start. If you can start as a self-employed individual, you’ll be able to avoid some of the biggest initial costs and enjoy a simpler tax situation too. Once you start earning some revenue or profit, you can invest and build the business you imagined piece by piece, rather than all at once. This lets you concentrate more on the business rather than worrying about huge capital needs.
  1. Outsource: The next option available for you is all about getting funding from outside sources. Yes, you heard it right. There are dozens of potential ways to raise capital even if you don’t have much yourself. First of all, don’t rule out the possibility of seeking help from friends and family, even if you have to secure the capital from multiple sources. Next, you can also look for Angel Investors who typically invest in exchange for partial ownership of the company, which is a sacrifice worth considering, Venture Capitalists who tend to scout businesses that are already in existence and are partnerships or organizations. You do have other sources as well that include Crowdfunding, Government grants and loans, and Bank loans.
  1. Resell something: Many business owners have grown large businesses just by reselling products that have already been made by someone else. This option will reduce the capital requirement by not taking the risk of heavy investment in plant and machinery for producing something new. For this you can set up an online store and partner with drop-shipping companies that will do all the order fulfillment for you. For example, online ecommerce platform Shopify has a great drop shipping guide that helps many startups in setting up their business in initial period. On the other hand, you can find items at thrift stores, antique shops, flea markets, and garage sales and resell them online or in your local community for more than you purchased them for.
  1. Sell your services: Selling services instead of a physical product is one of the ways to start a business with little or no startup capital. Depending on one’s background and interests there is a huge variety of services that the startups can offer. People require advanced degrees, such as accounting, engineering, law, medical etc. while others require little more than a working knowledge of how it’s done (such as babysitting, lawn mowing or personal assistance). In this case, all you need is a branding plan to make sure your name and company gets recognized by people who may need the service(s). It’s also useful to have a website to show examples of your work, list your experience, and blog about your industry to draw visitors.

With one or more of these five options, you should be able to reduce your personal financial investment to almost nothing. You may have to make some other sacrifices, such as starting small, accommodating partners or getting into debt, but if you believe in your business idea, none of these sacrifices should stand in your way. Capital is surely a major hurdle to overcome, but not an impossible thing to overcome.

5 Important Tips for Startups to Reduce Huge Capital Requirements
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