Unless your business operates solely in the digital realm, serving digital goods and services, you’re going to need to invest in some physical elements if you want your business to succeed. For some business, this is a heavier investment than others. For example, a construction equipment rental company might need to invest in machines like bulldozers or backhoes, while a spa might need to invest in furniture and treatment equipment. Even modern offices will need to invest in things like desks, chairs, and computers so their businesses can operate efficiently.
The Money Problem
The problem is that not all businesses have ample access to resources. If you’re just starting up, or if you’re a small business with limited lines of revenue, it can seem nearly impossible to afford the expansions or investments your company needs to keep growing. Fortunately, there are a number of options you can pursue to get the capital needed for your new investment.
Financial Strategies for New Investments
Try one or more of the following strategies to afford your new investment:
- Evaluate whether to buy or lease. First, you’ll need to consider the advantages and disadvantages of buying or leasing your new equipment. Most forms of equipment and technology, from laptops to robotic assembly components, can be bought or leased from manufacturers. In a lease agreement, you’ll pay a monthly fee in exchange for being able to use the equipment however you’d like; the advantages here are that you’ll need less capital upfront, and if something goes wrong with it, the owner will actually take care of it. The disadvantage is that, unless you’re in some kind of lease-to-own program, you won’t have actual ownership or equity in the equipment. Buying, on the other hand, requires more upfront capital, but you’ll be able to resell the equipment in the future. Consider your options carefully here; the liability of the equipment to break, its depreciation value, your need for the equipment, and your access to capital should all factor into your decision.
- Gather funds from friends or family members. This option is best for startups still in the planning phase, or those that have just launched and are in need of more equipment than originally planned for. If you’re only shy a few thousand dollars, you can probably drum up this money by asking friends and family for personal contributions. If you’re not afraid of the implications for your relationships, this is a safe, easy, and off-the-books way to go. You can even offer small pieces of equity in your company as compensation.
- Open a line of business credit. Small business loans and lines of credit are always available through financial institutions. As a new business owner, you might be afraid of accumulating debt, but remember that not all debt is bad. During your first few months (and maybe even years) of operation, you’ll probably be operating in the red anyway. Accumulating a bit of extra debt to give your business the equipment it needs to run efficiently is often a necessity. You’ll just need to make sure your personal finances are in order (unless your business has been around long enough to generate credit of its own).
- Seek an angel investor. You can also try to find an angel investor willing to help you procure the capital you need to afford your new equipment. Angel investors are advantageous because they’ll prevent you from going into debt. However, they usually make contributions to businesses in exchange for equity. Giving up that equity in your business also means you’ll be giving up some level of control in how your business operates; if you’re not prepared for that, or if you want to remain purely in control, angel investing isn’t right for you.
- Pursue crowdfunding. Depending on the nature of your business, you may be able to launch a crowdfunding campaign to ask your customers and prospective customers for a helping hand. There are a few things to keep in mind here, however. First, crowdfunding isn’t a route to free money; if you want people to contribute, you’ll need to offer them something of value in exchange. Second, every crowdfunding platform has strict requirements on what types of projects it will allow. For example, Kickstarter only allows businesses or individuals who are creating some kind of physical or creative product. Equity crowdfunding is worth considering, but you’ll run into the same equity challenges that an angel investor would offer.
With these strategies, any new or prospective business owner should be able to manage their new investment. There are definite pros and cons to each strategy, but if you truly believe in your business, your investment will be able to earn you enough revenue to make the necessary sacrifices worth it. This probably won’t be the last major overhaul or new investment your business requires, so start thinking now about how you’re going to fund the next one.