May 3, 2011 2:57 PM PT

10 Tips for Financing the Start Up of Your Home Business

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Starting up a home business on the side or as a full time venture can be an exciting way to create your own job. In this market, it may seem like starting up a business is an impossible or completely risky venture.

Of course, it’s always an adventure to start up a business. However, if you use the right financing techniques and don’t get yourself in debt over your head, you’ll be able to focus on your success rather than your money worries.

Whether you’re going to start a home daycare, a tax consulting business, or an online business, chances are likely you’ll need some financing help. Here are ten tips for what you can do to finance your home business:

  1. Make a business plan. This is a vital piece of planning any business. You need to have a plan for what your business will do and exactly how it will operate. This plan will help you see how much money you’ll need to get things going.

  2. Start small. Let’s say you’re starting a home daycare and want to put a $5,000 playground in your backyard. That’s great, but maybe you don’t need that at first. Start out with a smaller version that you can afford more easily, and then reinvest some of your profits for a while until you can put in the better equipment. If you’re creative, most businesses can start off with less expensive equipment and work up to their ideal setup as the business starts to make money.

  3. Don’t forget to account for business cards, advertising, etc. One primary mistake business start ups make is forgetting that they need to advertise in order to start making money. Research advertising costs for your niche, and add those costs into your business plan.

  4. Understand what you need to live on while you start your business. When you’re looking at small business financing, you may need to take out a bit extra so that you can pay the bills while your business starts up. For some people and some businesses, it will make more sense for you to work your regular job while starting up your business on the side. Otherwise, you’ve got to make sure you can put food on the table still!

  5. Look into government grants first. Because small businesses – even those without employees – are a huge part of the national economy, the government has a ton of available grants for people who start local businesses. Talk with your Better Business Bureau or a local Small Business Administration to see what resources are available for you. If you’re a minority or a woman, your chances of scoring a grant are even higher, but every business owner should check them out. They’re basically free money!

  6. If you’re doing any sort of non-profit business or a business that will somehow benefit your community, look for independent grants, as well. There are many available from private individuals, trusts, and companies. If you really want to be competitive here, consider hiring a professional grant writer, who knows how to find and apply for grants that could get your business operating money.

  7. Apply for a small business credit card. This is the easiest step to take if you’re just getting started and don’t need a ton of money. You can charge basic expenses to your credit card as long as you stay within the limits. How much you use it will depend on your preferences and situation. Just make sure you always stay below the limit!

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  8. Look at microfinancing and micro loans. Microfinancing is a rapidly growing sector of the lending community that only gives loans of usually $150,000 or less. Sometimes you have to go through business management training to qualify for these loans, but other than that, they’re easier to get than traditional loans. Here’s where that business plan will come in handy, though, because you’ll need it to land one of these loans!

  9. Find an angel investor or venture capitalist. These are two types of people who make risky investments in business startups in order to turn a good profit. Angel investors typically have a more hands-off approach to your business and may simply act as mentors, while venture capitalists expect to be in on most of your major decisions. Investors aren’t for everyone, but they can help you get your business off the ground without having traditional debt.

  10. Manage your business’s money well. Of course, all the great loans and investors in the world won’t get you anywhere if you don’t learn to manage your business’s money. If you aren’t sure, talk with a financial advisor to decide how to pay yourself, pay down business debts, and re-invest money into your business to make it grow. Only then will you see real growth and profit from your new home based business.

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