Steps To Starting A Small Business
Preparing a business plan will identify the amount of start up capital required (for building and/or leasehold improvements, licenses, equipment, legal and incorporation fees, and materials) as well as operating capital required (rent, utilities, wages and salaries, benefits, telephone and transportation).
The type of business financing depends on capital requirements. Term financing (repayment terms of one to five years) is required to fund the purchase of long-term assets, such as equipment or initial franchise fees. A long-term mortgage is required for very large expenditures, such as land or facilities.
Working capital is money needed for everyday operations such as rent, utilities, wages and office supplies. Many working capital needs are funded by the cash surplus of a business. During start up and at times when cash requirements outpace contributions from sales, there may be enough cash on hand to cover the day-to-day operating needs. In this case, businesses may acquire working capital either by borrowing money for a short time at fixed interest rates, or by establishing a line of credit at a bank or other financial institution. A line or credit is a negative bank balance, with flexible interest rates and repayment schedules. Normally, the amount of credit allowed is predetermined by the bank and the borrower. You will require the services of a bank to provide for checks and deposits and to keep a separate record of your business transactions.
Besides banks and other financial institutions, there are other sources of funding you can access. These include personal equity, family and friends, informal investors, venture capital companies (private firms that invest in high-risk / high-return ventures, usually by acquiring large shares of the business and providing management assistance), supplier credit, equity funding, shareholders, and government departments and agencies.
For information on Canadian financing options you should subscribe to The Business Guide website. You will be able to access information on financial assistance programs available from all levels of Canadian government. The Business Guide has financial consultants who can discuss your funding needs. For more information on assistance available in your province contact us.
For information on U.S. funding options review the many excellent resources available in our U.S resource centre.