How To Finance An Online Business In 2022
Have you decided to finance an online business? The first thing is to study the viability of your project to know if your ecommerce will be economically profitable.
On the other hand, if you are looking to finance an online business you will have to make a business plan. This is one of the most important steps you are going to take, so you have to pay close attention to all its details.
It is clear that having a good business plan does not guarantee that your online store will be successful. The success of your business will depend on many other factors, but this document will help you set goals and have a roadmap to achieve them.
If you want your business to be successful, you will have to carry out a detailed analysis of the idea, to know its viability in different aspects. You must analyze the technical, economic and financial feasibility. That is: you will have to establish a financing plan.
The financing plan is the tool that will allow you to describe what will be the sources and types of business financing that you will need in your venture.
When you are clear about how much money you need to start your ecommerce, then you should carefully study how to finance your business.
There are many ways to finance a different business. And you may have to use several of them consecutively or simultaneously, depending on the needs you have at any given time.
What Is The Business Financing Plan
Knowing what is the need for finance an online business is as basic as knowing from which sources you are going to get the money necessary to put the business project into operation.
The economic-financial plan,which is part of your business plan—, in addition to including the financing plan, incorporates the investment plan, the sales forecast, operating expenses, the provisional profit and loss account, the treasury forecast, and the balance sheet of the provisional situation.
The financing plan is the basic tool that will allow you to specify what will be the sources of financing of the dropshipping store you want to set up.
It is advisable that the percentage of own resources ranges from 30% to 50% of total funding. First, by investing one’s own resources so that the indebtedness is lower. In this way, the costs of repaying the financing – interest – will be lower.
Keep in mind that if you invest in your own project, external investors will interpret that you assume the risk and have a greater commitment and involvement with the project.
Steps To Make A Financing Plan
We have already seen that the financing plan for entrepreneurs includes points as relevant as what is the borrowing capacity of the business, the expected profitability, how to cover with the income generated by the store, the expenses of very specific operations, or what are the financial options that best adapt to the particularities of the business.
Types Of Business Financing
The two main types of financing for companies that an entrepreneur can resort to can be classified according to the origin: own or others.
We understand as a source of own financing the personal contribution of the founder or partners of a business. This contribution can be made through cash or through goods that are necessary to carry out the activity such as a vehicle, a commercial premises, machinery, etc.
External sources of financing are those that come from the environment of the entrepreneur, or from entities specialized in providing capital for investment.
In the case of loans from the entrepreneur’s environment, as is the case with money lent by family or friends, the repayment conditions are more favorable, since the amount borrowed is usually returned without any interest and in a relatively flexible period.
Another type of external financing that is also very interesting are the aid and non-repayable subsidies of public institutions or other types of organizations.
In the financing of others we can find, in addition to the traditional loans of the banking entities, the purchases on credit and the renting or leasing.
There are other more creative formulas such as crowdfunding (or collective financing), along with the use of business patrons (called business angels), who offer investment for new projects.
It is clear that you yourself will have to invest in your own business.
You have no choice but to resort to your own personal finances in order to start your project. That is what is understood as own financing that is mainly nourished by savings.
The more convinced you are that your ecommerce will make a profit, the more you will want to invest in it. And that will help make it more attractive to outside investors as well. Therefore, it will be easier to obtain external financing.
Are you one of those who like to sleep peacefully because you do not have any debt?
One of the main advantages of not needing external financing is that you will gain autonomy. And you will not have to endure other people’s opinions about the management of your business.
Few things are as annoying as turning to banks for financing. Many times the procedures are tedious and long, you will have to provide abundant documentation. Not to mention the long waiting times.
In case you are going to start your online store you can also capitalize on the unemployment benefit.
External financing is that which is done with people or entities outside your online store, such as financial financing for companies that are experts in granting loans to new entrepreneurs.
This form of financing of a company can be short-term (if the repayment term is less than one year) or long-term (when the term is greater than one year).
Think that having a good banking history will help you improve your ease of obtaining credits and, therefore, will free you from having your personal assets retained.
With low interest rates and the business running well, the smart thing to do would be to finance the long-term investment with the best possible conditions.
Forms Of Financing Of A Company In The Long Term
If you do not know how to finance a business, here are the most common forms of long-term financing.
It is part of the long-term financial liability.
Therefore, the loan is considered part of the permanent resources of the company and finances fixed asset investments.
Before formalizing a loan or a loan, it is necessary to study the possibilities and make decisions about the lending financial institution.
At a minimum, you have to reflect on the amount, the interest rate and the mode of repayment (repayment plan).
Leasing or lease-to-own is another source of long-term external financing useful in the business world.
It is a mechanism for acquiring assets without resorting to capital increase or obtaining funds.
The participants in the leasing contract are three:
- The company that needs to acquire the asset.
- A company that supplies the asset.
- The financial institution that performs the leasing operation.
Venture capital is a mode of financing for start-ups, which sell innovative products.
Due to their type of business, they usually require high initial investments and have high risk.
Venture capital firms – intermediaries between investors and entrepreneurs – invest in this type of startup. And they also advise them on the day-to-day management and facilitate the conditions for the business to continue growing.
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