How to finance your e-commerce startup
One of the best ways to fund any e-commerce business is by bootstrapping. That way, you get to run the outfit, make all the important decisions, and crucially, hold on to more of the profits than when you find an investor – but there’s a problem.
The trouble is – no matter how ingenious and frugal you are – almost all bootstrapped ventures get to a point where a lack of working capital becomes a serious issue. Without that, it’s often impossible to expand and strengthen your business financially – it’s kind of a catch-22 situation.
But never fear. In this article, we’ll look at how to use borrowing, such as seeking an unsecured business loan, and search out other solutions in order to grow your business when that time arrives.
Bootstrapping your e-commerce startup
Bootstrapping any e-commerce startup can be a challenging slog. Expect hard work, setbacks, and a fair number of tears along the way – but don’t ever get put off chasing that dream. Companies like Apple, EBay, and GoPro all struggled a bit to get off the ground with bootstrapping – and now they’re high-altitude household names.
Typically, any bootstrapped business goes through a few different stages:
- In the beginning
Stage one is when you need to use every bit of your entrepreneurial skill to get things started. You’ll have to dig deep into your savings and beg or borrow money from family and friends just to make everything add up.
Even the best business ideas need cash flow, customers, and some good old-fashioned goodwill to reach their break-even point. However, when your revenue finally starts to cover your operating expenses, you can move on to the next stage.
Stage two is when you use the cash coming into your business from sales to keep everything running. It’s still a pretty precarious place to be, but with a bit of luck and constant effort, you can start thinking about growth.
If you haven’t already, now is the time to put a proper business plan together because it will help with the next stage.
- Time to get growing
Stage three is a far better place, but you have to tread carefully. If things are going to plan, you’ll be thinking about expanding your inventory to meet growing demand – and unfortunately, this is where a lack of working capital can stop e-commerce startups in their tracks.
When you’re relying on sales, buying more stock will likely leave you with a shortfall – and that’s a real problem. Being able to negotiate more favourable payment terms is one way to lessen the sting, though at some point business owners will have to start looking for finance to grease the wheels of commerce and relieve stress.
Borrowing funds isn’t easy when you’re still newb however – banks like to see a history of accounting and revenue before they’ll approve most lending – but don’t give up yet.
So, what are some possible solutions?
You’ve just broken through the break-even barrier, and your sights are firmly set on expansion, so this is hardly the time to abandon your e-commerce dreams. Try these three next moves instead:
- Luckily, you can seek out an unsecured business loan with even the most basic financial projections and a short history of sales. Structure repayments to suit cash flow and development.
- Don’t forget government – there’ll be help available where you live. For instance, New South Wales runs some excellent incentives and schemes for new businesses, and Victoria offers a multitude of grants and programs designed to help ventures get airborne, too.
- Startups and merchants are the lifeblood of major platforms. Consequently, some of the biggest names in e-commerce offer incentives and assistance.