Startups need operating capital to remain solvent. To secure funding, entrepreneurs often turn to angel investors or venture capitalists. However, such funding usually requires entrepreneurs to give up a substantial portion of their company’s equity in exchange for funds. In some cases, it also means that the entrepreneur could eventually lose control over company operations. Other methods of obtaining cash for a business may not be not so arduous.
One alternative method of securing working capital is to take out a loan or a line of credit. In some cases, it is possible to secure a line of credit by borrowing against outstanding invoices and receivables. To completely avoid starting out in debt, though, some entrepreneurs cash flow their new enterprise, which simply means using revenue to fund all operations. Although this may result in a slower start, it often proves to be beneficial in the future.
When attempting to cash flow a business, it is important to start out small, watch the budget carefully and keep costs low. In order to do that, some entrepreneurs begin a business by setting up an e-commerce store that requires very little upfront cash. A person who has marketable services to offer may be able to assume the role of a contractor or freelancer. Other options for cash flowing a business include grants and crowdfunding.
Although it isn’t necessary to establish a corporation or set up an LLC to start a business, there are definite advantages in choosing a business structure that fits the current needs of a company and provides for future growth. This is especially true in order to secure funds. However, those choices require a thorough knowledge of business law, and entrepreneurs may find it helpful to enlist the services of a law firm with experience in business formation and planning.
