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How Start-up Capital Works

Your Capital Needs

For each stage of your company's life, there may be financial needs that require outside funding. The funding types for the different stages are called:

  • Seed capital - Seed capital is the money you need to do your initial research and planning for your business.
  • Start-up capital - Start-up, or working capital, is the funding that will help you pay for equipment, rent, supplies, etc., for the first year or so of operation.
  • Mezzanine (expansion) capital - Mezzanine capital is also known as expansion capital, and is funding to help your company grow to the next level, purchase bigger and better equipment, or move to a larger facility.
  • Bridge capital - Bridge funding, as its name implies, bridges the gap between your current financing and the next level of financing.

Each of these plays an important part in your company's growth at various stages. In this article, we'll focus on start-up capital. You're going to need some funds to keep you going while your business cuts its teeth. Where will your money go?

  • Payroll and its peripheral expenses (for you and any employees)
  • Utilities (phones, electric, Internet/communications, etc.)
  • Rent
  • Marketing and sales-related costs
  • Supplies
  • Maintenance
  • Insurance
  • Taxes

Make sure you allow enough money for the true expenses associated with running your business for the first year of operation. (And don't forget to pay yourself first!) Make sure you've planned for more employees, production increases, more stuff for those new employees, etc. One of the top reasons many new businesses fail is because they don't get enough start-up capital. (The other reason is poor management.) Realistically estimate your financial needs and leave room for the unexpected, or you may unexpectedly be out of business.

So now you know about different financing for different stages of company growth and maybe have an idea of how much capital you need. How does this financing work?