Funding your beauty business can feel overwhelming. You may not know where to start. There are so many different ways to fund your business, from using your own money, reaching out to friends and family, crowdfunding, loans, credit cards, etc. More likely, you are going to fund your business from a variety of these options.
Before you begin to think about getting funding, the first step is to understand your current finances. This will determine which avenue makes the most sense for you and your business.
5 questions you should ask yourself before funding:
1. How is your credit?
2. What risks are you willing to take to secure funding?
3. How strong is your network?
4. How quickly do need the money?
5. What are you willing to give investors?
Let’s take a deep dive into each, shall we?
How is your credit?
Familiarizing yourself with your credit report is essential. Banks will check your score before approving you for credit cards and loans. Other businesses may also check your reports to decide if they’ll take the next step in working with you or not. If you have good credit, you likely qualify for a business loan. On the other end, if your credit is low, those funding options may not be available to you.
What are the pros & cons of using a credit card?
- It’s the quickest and easiest method for funding your business
- People with good credit can sometimes get a 0% interest card for an introductory period
- You may be able to negotiate with credit card companies to lower your debt if you can’t pay it back
- High-interest rates
- Can hurt your credit if you can’t pay them back
What risks are you willing to take to secure funding?
Risks will always be involved when starting a business. What financial risks are you willing to take to secure funding. Keep in mind, there will be repercussions if you are unable to repay your lenders. For example, if you take out an SBA loan, you still have to pay it back even if you file for bankruptcy. Or say you can’t pay back your credit card debt. It can take years to pay off, plus it will negatively affect your personal credit score.
How strong is your network?
We all know that the internet is our best friend but also our worst enemy at times. Be sure to grow your customer base online, especially on social networks. Having a large presence online will benefit your company and will give you more exposure. If you do have a large online presence, crowdfunding or angel investors can be a smart idea for funding as well.
How quickly do you need the money?
It’s best to not rush things, especially when it comes to money. But this question is important as you move forward. If you are in a situation where your business needs quick funds, take a step back and focus on the big picture. Different sources of funding take different amounts of time to secure. So keep that in mind when you’re looking at a timeline. If money is a concern right away, it may be that credit cards or a line of credit is your best option. But if you have a month or two to spare, focus on another route to fund because of high interest rates.
What are you willing to give investors?
If you thinking you’d like investors to fund your business or a portion of your business, think about how much are you willing to give your investors in return. Will you offer equity or decision making powers in your business? My favorite example of this is the show Shark Tank. When entrepreneurs step up to the hot seat and ask the Sharks for “$100,000 for a 10% stake” they’re asking these investors to invest in their business but also have some power in the operation of it.
Two specific investor sources are angel investors and venture capital firms. Both play huge roles in supporting businesses. Compared to venture capital firms, angel investors are more likely to work with smaller companies. They are also more likely to mentor you and provide contacts and strategies. Venture capital firms are usually to want to see a track record of success and to make a larger investment, typically over 1 million dollars, which is probably more than you need at the moment.
Angel investors versus venture capital firm
Here’s a little sneak peek on how I funded 42 Dubonnet Makeup to give you an idea of how funding might look for your beauty business.
- Wells Fargo line of credit (backed 50% by the bank and 50% by the SBA) ($8k )
- Credit cards (2 x $8k)
- Invested our own money
What we spent
- We spent $25k the first year
- $13k the second
- $6k the third
So what’s next?
Remember that building your company is a long process and takes time. Don’t rush it. Take these questions into consideration. Every company has to take a risk to gain a reward, but aim to make a calculated risk.
Ready to start your own beauty product, but don’t know how to get started?
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