How to Wisely Deploy Capital
Whether you’ve already started a new business or are just in the planning stage, there is a good chance that you might have a lot of questions, particularly about money. Maybe even as simple as , “Where do startups get funding?”
Once you figure out where to get the money, you may be wondering what to do with it. You want to keep everything on the straight and narrow. It can be complicated so using accounting services might actually be a good bet that can save you money down the road.
We are going to break down some smart ways to use capital when you are starting a business.
Where do startups get funding?
It should be no surprise that starting a new business requires money. Sure, it’s possible to get something going with little to no capital, but eventually, you’re probably going to need it to pay for ads, run a website, and buy assets to make doing business easier.
In terms of business, capital is defined as anything that increases your ability to generate value. Value is considered your company’s financial assets. Having capital allows you to invest in your business to help it grow.
So where do startups get funding? There are a lot of sources, some traditional and some not. But here are a few:
Self funded: When you use your own money to start a business.
Bank loans: Borrowing money from the bank to fund your venture.
SBA loans: Loans from the Small Business Administration.
Venture capitalist: There are people and firms who specialize in giving or loaning money to startup companies.
Grants: There are organizations who will give you money that you don’t have to pay back in order to start businesses. Grants can be very competitive, but it never hurts to look into them.
Ask friends and family: People close to you believe in you. You can always ask them for loans or investments to help get your business going.
Crowdfunding: There are a lot of websites where you can pitch to the public and they’ll help you fund your business.
Once you have some capital secured, you need to figure out how to use it.
Capital in the Early Stages of Business
In the early stages of a business, deploying capital is about building a product and then generating sales. In other words, you are best served using this money to develop a viable product. Whether your product is physical, virtual, or a service, you need to be sure that what you have to sell is worth buying.
If you aren’t an expert on the product you are planning to sell, it is smart to hire a research and development professional or a consultant who can help you out. And even if you are an expert, it’s always good to have someone who will give you honest feedback.
Spending Capital
Once you have your product or service ready to go, you’ll need to start spending. The goal of spending is to increase the value of the business. Use your capital to invest in the business so it can grow and thrive.
Ultimately spending becomes more about increasing earnings before interest, taxes, depreciation, and amortization or EBITDA. EBITDA is a business analysis metric that helps to determine a company’s profitability and its potential to pay back money that it has borrowed.
So what can you spend capital on in order to increase EBITDA? All of these things contribute to future earnings in one way or another:
Marketing
Technology (including hardware and software)
Personnel
Inventory
Office or warehouse space
Accounting Services
Having a CPA or accountant for a small business is important, especially when it comes to tax season. A good startup CPA will help guide you on smart ways to spend your money. Although you might think it’s easier to find the best accounting software for a small business, using accounting services will save you money in the long run.
Fractional CFO
As you know, starting a business can be expensive and one of the biggest investments is in the people. You want to be sure that you get the right “human capital” in the right positions in order for your business to be successful. Hiring itself costs a good amount of money (and time). Many small businesses use outsourcing in order to find experienced professionals at a fraction of the cost.
Because accounting is so complicated, using accounting services with a startup CPA or team of accounting professionals is the perfect way to get everything you need in order to be successful when it comes to spending capital. You don’t need to find the best accounting software for a small business because your outsourced team will already have it. They have also mastered using it, so there is no learning curve that wastes time.
As your business grows, you need a trusted partner who knows you, your business, and your goals. Ursa Consulting is an expert group of accountants that work virtually so you can use their accounting services no matter where you are located. We pride ourselves on our experience as a startup CPA team who build the relationship with you in order to help your new company succeed. By partnering with our clients, we are positioned to provide top tier reporting and project execution better than other fractional resources.