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3 funding facts start-up businesses must know

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Getting money to fund a start-up business so it launches and becomes operational requires planning and salesmanship.

A microbrewer in his first year told me that it could cost twice as much as what you plan. “If you think your business is going to take $1 million dollars to launch,” he said, “count on needing $2 million dollars.”

Planning

In Southern California, getting a business like a restaurant up will require it to have everything in place before it starts and before licensing will give final approval. The wait can take months in some Southern California counties. Be sure enough cash is on hand to wait for licensing approvals before transactions can start with customers.

Banking

Approach a bank that’s friendly to entrepreneurs and understands the unique needs. The CEO of Banc of California, Steve Sugarman, told me that they’re well capitalized to work with entrepreneurs at each stage of the business cycle. He advised meeting with a banker as early as possible in the process.

Outsourcing

Small business owners starting a business may think they can do a lot of the tasks themselves and not realize the importance of outsourcing. Paul Davis and Jim Meyer of the car-sharing company Hubber said they worked closely with vendors who believed in the business model and offered reduced rates or agreed to not charge for a specific period of time. Paul and Jim considered that a form of private financing.

Rodney and Jason Carr of Softline Home Fashions told me that during their first two years they used factoring to fund the import and sale of fabrics.

Factoring provides short-term financing arrangements between companies who advance money to a business based on invoices and accounts.

Plan carefully, talk with a banker, and make arrangements with vendors and suppliers to create the most favorable cash flow scenarios during the start-up phase.

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