The following is a description of many of the options available for funding staffing businesses in today's economy. The most commonly used funding sources are described for you more fully than the less used, narrower in scope methods. For your convenience, the sources have been generally grouped into the following categories: Self Funding, Private Resources and Commercial Funding.
Self Funding
The vast majority of businesses (close to 90%) are begun with less than $100,000 and close to a third are begun with less than $10,000. This kind of money is usually available to the motivated entrepreneur by taking a close look at the personal resources at his or her disposal well in advance. Several of the most common self funding methods are described here.
Personal Savings and Equity
The vast majority of new businesses are started with the main source of funding coming from personal savings or various forms of personal equity of the founder(s). This capital reflects the degree of motivation, commitment and belief of the founder in the enterprise. This type of investment also takes the shape of sweat equity, where individuals either donate their time or provide it at below market value to help the business get established. Many times entrepreneurs use profits from previous endeavors to pour into their new enterprise.
Moonlighting
Many home-based businesses are begun while the founder is still working a regular job. The income from the job can both help support the owner during negative or low cash flow of the business set up phase and it can provide working capital to augment the business's cash flow. Usually when the business begins paying as well or better than the regular job, the entrepreneur can jump ship from his job and devote full time to building his new business.
Home greeneasylife.com Equity Loans
This may be the fastest growing method of raising money for individuals. Unfortunately since the economy has been suffering, banks are beginning to be much more stringent on who gets greeneasylife.com equity loans. If you have good credit and have equity in your business, then perhaps you will be able to qualify.
Home greeneasylife.com equity loans are generally offered through commercial banks or savings and loan associations. 2010 interest rates for second mortgages are under 5%. In some instances an approved home greeneasylife.com equity loan can be structured like a bank line of credit at slightly lower interest rates.
For tax purposes, you can deduct interest on the debt on home greeneasylife.com equity loans, regardless of how you use the money. This makes a home greeneasylife.com equity loan attractive when looking for your start up capital. Remember that since this money is secured by your home, the bank could foreclose if you fall behind in your payments.
Insurance Policies
This is a personal type of loan that is becoming more available and more popular as a method for obtaining early financing for a small individually owned business. Other entrepreneurs have been known to completely cash in their life insurance policies. Many insurance companies have, in recent years, liberalized their criteria for allowing policy holders to borrow against the value of their policy.
Tax Deferred Retirement Accounts
Dipping into your tax-deferred retirement account can be a last resort for funding your business. This works best if you are more than 59 1/2 years of age. While the money in your Individual Retirement Account or 401(k) plan is technically available to you, you'll need to pay an early withdrawal penalty plus regular income tax on money you withdraw. Obtaining funds with this method may still be worth it to you if no other financing avenues are available and you have the motivation.
It might be possible to get an unsecured loan on the strength of your retirement accounts. Although these accounts would not directly be pledged as collateral, the money could be withdrawn at a later date to repay the loan if it was required.
Credit Cards
"Pulling out the plastic" for fast funding of your business is more viable now than ever before. MasterCard or Visa card holders with good credit now often receive credit limits of $10,000 and above. By being able to carry more than one credit card, as an entrepreneur you can considerably boost the total amount you can tap into at any one time.
Credit card interest rates on cash advances vary considerably, from as high as 29% to 5% or lower. Annual fees can also range from over $50 down to zero. This means it is wise to investigate getting the best deal you can when obtaining your credit cards. It may be advantageous to close out one or more of your high interest cards and transfer the balances to lower cost credit cards.
Remember that obtaining funds through credit cards costs much more than bank loans. If you do use your credit cards for business funding, pay them off as quickly as you can. Paying only the minimum payments can extend interest for years without making much progress toward paying off the principal. Also, if your enterprise should not pan out, the credit card payments you will be stuck with may place you in a personal financial squeeze.
Bootstrapping
Often the best money to go after is the money that can be saved from the current costs and overhead of your ongoing business. This is a commonly overlooked source when business owners and managers are looking for the elusive "pie-in-the-sky" financing. A penny so saved is literally more than a penny earned on the bottom line, and a penny less borrowed. The interest is saved on the now lower loan amount and the time and expenses associated with finding additional financing.
The process of thoroughly searching through your operation for opportunities of savings and improved efficiencies will also allow you to learn more about the intricacies of your company, which will put you in a position to manage it better-a double return on your invested time and effort. The upshot is that by becoming more efficient and cost conscious, you will be in a stronger position at all times to qualify for refinancing options as they become needed and available.
Customers
Unfortunately in the medical field Net 30, Net 60 or Even Net 90 is common,. If you can encourage Net 30 by giving discounts you avoid financing Hospital and spur cash flow.
Stock Purchases and Options to Employees
Your employees can be your partners in solving needs for capital at your company in a variety of ways. You can offer certain senior and trusted employees to become common stockholders by investing in a purchase of your company stock. Employees usually have limited discretionary funds for stock purchases, but every dollar counts, and employee dollars usually come with the motivation to help improve the results of the company, thus the value of their investment. Common shareholders also have the right to have a say in the management of the company. Another possibility is to offer these employees nonvoting preferred shares of stock in return for their investment.
Many companies in their early phases of growth offer key employees or business partners options to purchase certain amounts of stock at later dates, often at a discount price or on very generous terms. The stock options help supplement the employee's salary, which may be agreed to be below industry standards so that the company can retain this salary saving as capital for help in becoming successful.
By being part owners and participators in the profits, these desired employees will more likely choose to remain with your company instead of looking elsewhere for work. As with any individual investor, always document this investment relationship with your employees. With employee stock options you can legally maintain a right of first refusal, holding the first right to buy back the shares if the employee leaves or is terminated.
While there are many advantages to a company offering stock options, be careful not to give out options too easily, too quickly, or to persons whose true expertise and loyalty has not been fully demonstrated. What may not seem to be costing you much early on in the business could cost you dearly in terms of money and time later on, should your relationship with stock option holders deteriorate.
Roy Vera MBA,RT is an experienced medical staffing author, publisher and consultant. For more information visit us at vismedical.com vismedical.com.
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