Sound financial management is likely to be the key to your business' success. Whether you're starting, buying, or expanding, minimizing financial risk is crucial. There are a number of resources available to help you. The US Small Business Administration is a good place to start with Understanding the Basics.
When starting out, personal savings, money from friends and family, and some form of loan or credit are the most common forms of financing.
But before you can secure a bank lender or investors, you need to develop a business plan and understand cash flow statements, balance sheets, and income statements. In many cases, business owners will be asked to provide 15 to 25 percent of the total amount of funding that they are seeking through loans. Business owners also may be asked to provide personal guarantees and pledge personal assets. Loans are often secured by some or all of the assets of the company, such as equipment, real estate, inventory or accounts receivable.
Besides personal savings, below are some of the most common ways to secure financing to start or expand a business.
In addition to banks and other creditors, the Kentucky Cabinet for Economic Development, with its various loan and incentive programs for Kentucky-based businesses, and the U.S. Small Business Administration (SBA), are both equipped with programs designed to assist business development.
The Cabinet for Economic Development administers a number of financial incentive programs to benefit new, existing and startup companies, all designed to encourage economic growth across the state. The Cabinet also offers grants for customized workforce training programs, direct loans for fixed asset financing, small business loans, industrial revenue bonds, and grants and loans specifically for high-tech businesses and projects.
Equity financing is a tool that allows some companies to raise capital in exchange for a share in ownership, typically in high-growth or emerging industries. Equity investors want to earn a high rate of return on their investment in the firm and then sell their ownership interest, hopefully at a significant profit. Therefore, an investor exit strategy is an important component of any equity financing strategy. Here are some more resources to learn about equity financing and venture capital. Kentucky also offers several funding programs to assist high-tech companies with significant growth potential.
Grants are not a typical funding source for most businesses. In some cases, the government may provide grant funding for high-tech research and development or worker skills training, but government agencies generally do not provide grants for starting or expanding a business. Kentucky has limited grant programs that are geared to industry-specific worker training programs, and high-tech industries.