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Small Business Employee Benefits and HR Blog

Cracking the Code: Use Startup Funding the Right Way

It doesn’t matter if you’ve raised $200,000 from investors and family, or if you’ve raised the money Startup_funding_ways_to_use_moneyyourself, the way you use your startup funding for your new small business will have a huge impact on the way things unfold.

You really only have one shot. That’s why it’s imperative that you use your startup funding the right way. But the question is, how can you you feel confident you’re using startup funds in the correct way? In this article, we’ll talk about 4 different key things to remember as you start making purchases for your new startup.

Note: If you’re not sure how to get startup funding, click here.

Key #1: Remember Where Your Money Came From

Before you go on a spending spree for your small business, remember where your money came from. Whether you raised the funds yourself, or if it was donated by investors, the money came from someone who worked hard to earn it.

Knowing this, every time you go to make a purchase for your startup, ask yourself, “Is this the absolute best way to spend my money?” Asking yourself this question, and remembering where your startup funding came from will help you make wiser decisions when spending your money.

Avoid: Whatever you do, avoid the idea that your startup funding is yours to spend in any way you would like. Every dollar should be spent to make your business as successful and productive as possible.

Related: 4 Ways to Get Startup Funding You Need

Key #2: Involve Investors Regularly

Your startup business is exciting, not just for you but for all those who inspired you, believed in you, and contributed to your efforts. As such, share your success and progress with those who have taken a chance and invested in your dream.

What’s the best way to do this?

Every week send pictures, videos, and numbers to your investors to keep them informed and actively participating in the progress of the business. Otherwise, suggest your investors stop by at least once a month to see the progress for themselves. This allows them to see that their money is being put to good use, and it serves as an accountability report for you.

Avoid: It’s important for you to update those who have invested in your startup. Keeping them in the dark will only make them nervous. Your transparency and accurate accounting will illustrate your competence and make it easier for your investors to continue placing their confidence in you.

Key #3: Be Patiently Wise

It’s challenging when you want to get your new business going, but you have to wait for equipment, software, etc. to be ordered.

Often, you’ll be presented with a choice: Purchase something you need for the business now, even though it’s not exactly what you need, or wait a week or two until it’s ordered. The truth is, waiting for the proper items you need will pay off in the long run. The same goes for office space. Don’t put down a deposit simply because it’s convenient. Make sure you’ve found the right place first.

Avoid: If you are waiting for a specific, essential item to arrive, make sure you’ve done your research to be sure it’s worth waiting for. You don’t want to put off your open date for an essential item that ends up being low quality or doesn’t work properly.

Again, this can be applied to all aspects of your business. Do the appropriate research for anything you’re waiting on to determine if it’s even worth the wait.  

Key #4: Split the Pie

Investors rarely will invest in your startup out of pure charity -- they’re expecting a return at some point.

So, the responsibility is yours to utilize your startup funds correctly and honestly, while ensuring your investors are given their proper return in due time. You can do this with an attorney, written contract, and a calculator. Make sure you’re splitting up profits to your investors based on your written contract -- giving each investor their respective percentages.

Avoid: Your investors understand that startup businesses do not become profitable over night. Frequently it will take months or years to become profitable. Remember to include a condition of investments so your investors understand that they will get their share of profit, once you’re actually making profit. This is part of keeping your investors informed and knowledgeable.  

Bonus Key: Your Money is Just as Valuable as an Investor’s

If you’re a “bootstrapper” (someone who funds their own startup) there’s one thing you need to remember: Your money is equally as valuable as if it were coming from investors. In fact, you are also an investor.

Knowing this, it can be hard to separate in your mind personal money from your startup fund money. The best way to do this is to establish both a business account and a personal account. When spending funds from your business account, treat the money as if it were coming from investors. Remember, your startup money is valuable, regardless of its origin.

Avoid: Never keep your business debit card and personal debit card in the same place. They can easily be confused. Separate them to avoid any crossover of business and personal spending funds.

Conclusion

Using your startup funding the right way is important. Not only does it help your small business become successful, but it instills confidence in those who have contributed funds to help you start your dream. Remember:

  • Spend your startup funding wisely by asking yourself “Is this the absolute best way to spend my money?”

  • Keep your investors in the loop

  • Be patient as you’re purchasing the essentials for your business

  • Ensure your investors know when they’ll get their portion of profits

What questions do you have about startup funding? Leave a comment below.

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