Have you always wanted to start your own small business? Small businesses are making a comeback, and you want to get in on it. There’s only one thing missing…the capital. To acquire money for your business venture, you need to start with a few simple steps. You will need to establish business credit. To do this you need to establish your business as a legal entity, find real financing, boost your personal credit rating, and stay away from “buying” credit.
Establishing your Business
What’s in a Name?
You have an idea, and you want to market it, but how do you do that when you don’t have a lot of capital to get you going? The first thing you should do when you’re looking to establish business credit is find a name for your company. You may want a name that is product related, like YuMMy Baked, the Santa Monica based small business. This clever technique also includes MM in YuMMy , standing for the proprietor Margaret Mitchell’s initials. You could name your business according to the proprietor(s) involved.
Establishing Your Company as a Legal Entity
You will want to register your business as a legal entity. If your business has any name other than your given name, you must register it with your state. In many states, you will need to go to your county clerk’s office in order to do this. The will check their database to make sure the name you want to use is available. Do your own search ahead of time, so you can come up with a name that isn’t being used or was previously used. You will receive an application, in which you will need to fill out items such as: Name of business; address: this must be a physical address and you must include all addresses where business will be conducted (e.g. If you work from your home and have a warehouse), P.O. boxes, etc.; name of proprietors, type of business you plan to conduct, etc. You will need to have this document notarized, and return to county clerk.
This can be done on your own, though I suggest finding a good lawyer that will work with you on business matters.
Don’t forget you will need to decide if you will be establishing an LLC, Incorporation, or Not-for-Profit. This decision may have some influence on what type of funding will be available to you down the road.
Finding Real Financial Outlets & Establishing a Good Credit Rating
Like many, you are probably thinking that there must be some investors out there…but how do you find them? The first place to start is your bank. Hopefully by this point you will have opened a separate checking account for your business, as you want to keep personal and professional matters separate. Once you do this, you can apply for a business loan. This might be more easily approved if you have chosen to incorporate.
Depending on how you have setup your business, and if this is a joint venture will determine how closely your personal credit will be taken into account. You will need to continue to improve on your own personal credit rating, as well as establish business credit. You may need to start small on this, but every little bit counts.
Often times we are so anxious to get our idea off the ground, that we don’t put enough time and energy into planning. Probably the biggest pitfall we run into is financial. When establishing your company, you need to make a budget and stick to it. You need to come up with wants and needs and stick to them. Needs should always outweigh the wants. Have this firmly laid out so that when financing comes along in one way or another, you are ready. This way you won’t fall victim to indulgent spending. It’s like going to the grocery store, and telling yourself that you will ONLY get what is on the list, but when you get to the check out, you reach for a candy bar. DON’T BUY THAT CANDY BAR!!
Decide what your business needs to make it work…bare minimum to start (unless you can truly afford all your needs AND wants.) Once you get going, you can make adjustments as necessary.
Remember, to establish good business credit, you must also work on improving your personal credit rating. Work hard at building a good foundation for yourself financially, so that when you hit a few bumps along the way, they won’t be devastating to your business nor your personal financial health.