Sometimes it takes money to make money. Most sellers start their businesses with very little cash, but reach a point in their growth where they need access to more money to achieve their goals. There’s no doubt that loans can be intimidating and scary. This post is intended to make the whole world of capital access a little more approachable.
Before You Get Funding
First, consider your goals and your budget:
1. Know your goals
What are your business goals? You have to know where you want to go before you can figure out how to get there! Try to put your goals in financial terms, such as: “I would like to sell enough to make $x this year.” Avoid the tempting trap of making loose goals, like: “I want to make as much as possible.” I’ve found that it’s much more useful to create a few smaller goals than one big one. For example, you can easily turn “I want to make as much as possible” into “I want to make $x next month; $y by the end of the year; etc.”
2. Know your budget
Once you know where you want to go, think about the path to get there. If you want to make $x this year, how much money do you need to spend? Maybe you need a new piece of equipment to make your production more efficient or maybe you need to run a big marketing campaign to drive traffic to your shop. Be as specific as possible with your budget and research costs thoroughly so you aren’t guessing – there’s nothing worse than finding the money to get a new piece of equipment and realizing it actually costs more than you thought.
3. Be cost efficient
Go back over your budget; what do you really need to spend to reach your goal? It’s easy to think that you need to spend more money than you really do to reach your goals. Here are some common mistakes to look for:
- Overpaying for materials or equipment – A brand new, top of the line sewing machine would look great in your studio, but is it necessary to reach your goal? Could you share equipment costs with neighboring artists, barter a trade with others on your team for used equipment, or use equipment at a co-working space, like Tina from BetterOffWed? On the materials side, are you getting the best prices by buying in bulk?
- Overpaying for marketing – Sometimes the best marketing is free. Before beginning to raise capital for a Super Bowl TV spot (just kidding… I hope!), think about how you can leverage PR, word of mouth, social media, and Etsy community resources like the Treasury, Teams, etc.
Funding Option 1: Making More Money
You have an operating business, so option 1 for getting more money should be increasing your revenues. Consider the following:
Reconsider your pricing: In addition to raising your prices, consider other elements of the pricing equation. Finding less expensive supply sources and finding ways to save time will help you create better profit margins.
Learn more: The Art of Pricing for Profit
Creative marketing: Hosting events such as trunk shows, teaching classes (I love Skillshare for this), sales, social media, cross-promotions with other artists, reaching out to bloggers, and finding ways to get more traffic from Etsy and various search engines are just a few of the many ways of getting out there.
Funding Option 2: Outside Sources of Funding
Your second option for capital is to look for outside sources. If you go this route, it’s important that you feel like you are offering a great opportunity to those who put money into your business, not asking for a handout. If you aren’t confident in your business, you can’t expect anyone else to be. If you are confident in your business, here are some great capital options to consider:
Friends and family fundraising: This is one of the most common ways that businesses get money when they are getting started (even big companies like Whole Foods). Financial gain is not the primary motivation for most friends and family lenders – they lend because they believe in you and your business. No one is saying this is easy – taking loans from people close to you is often uncomfortable and can stress relationships. You can prevent that by using clear, fair terms (you can make a simple contract), including people in your journey (sending frequent updates, free products, etc.), and taking smaller amounts from multiple people.
Crowdfunding: When you crowdfund, you use a site like Kickstarter to publicly tell your story and raise money from many people to reach your financial goal. Contributors get something from you (a thank you card, one of your products, an invitation to a special event, etc.) based on how much money they contributed. There’s a great fundraising story in this article from Man vs. George, an Etsy seller who wanted to raise $4,000 on Kickstarter to go to the National Stationery Trade Show. It can be a lot of work to successfully implement a campaign, but there are great marketing benefits in addition to the fundraising.
Small business loans from an MFI: When you think of getting capital, you probably think of bank loans first. Microfinance Institutions (MFIs) are a different type of lending institution offering smaller loans, looser lending criteria, and financial education. This is a good option to consider if you want to build your credit for future loans and growth. ACCION is a great MFI to consider – you can learn more here.
Loans based on sales: You might also consider taking out a loan that is repaid based on how much you sell. Kabbage is a lender that will lend to you instantly through an online application based on your current sales on Etsy — lean more here. If you are starting to get into wholesale, this could be an interesting option for getting the money to buy materials to produce the order before your invoice is paid.
Money doesn’t make your business. A successful business takes having great products that people love, creative marketing, thoughtful management and much more. To be sure, you can do it all with very little money, but you know that you have options. It’s up to you what goals you set and which path you choose to get there. Onward!