When you’re setting up a start-up company, there are various things you need to prepare.
Some of the aspects you need to consider are coming up with a business name, buying a domain, setting up a business website, filling in the legal requirements, obtaining necessary permits, leasing office space, and purchasing inventory.
Unfortunately, all of these steps cost money. To be able to do them, you will need to capitalize on your start-up company.
So what exactly is capitalization, and how do you do it? This article will explain just that and provide you with five different methods to capitalize on your start-up company.
Let’s get started.
What Does Capitalization Mean in Business?
In business, capitalization generally means the initial funding needed to start a business. It’s usually the investment made by the business owner and other investors in the company.
As a start-up company, you’ll likely need to spend money on a few things like inventory, office equipment, hiring employees, and sorting out insurance. Therefore, each item on this list will require a monetary investment.
There’s no way to know precisely how much capital you’ll need to start a new business, so the next best thing is to create an estimated capitalization plan.
The next step is to find the capital needed for your business. Below are some of the methods that are used by companies.
Methods for Capitalizing Your Start-Up
As a start-up business, finding the necessary funding for your expenses, inventory and operations can be very challenging. But don’t worry. There are some methods you can use to capitalize on your business.
This method is a form of financing where money or capital is invested by investors in a company that is not publicly listed in exchange for ownership or interest in that company.
To start, you should pitch your company’s goals, objectives, and the projected success to a private equity firm. You then discuss your business plan, negotiate about the amount of funding you require, and explain your exit strategy.
An exit strategy is a strategic plan to sell your company’s ownership to investors or another firm. It gives you a way to relinquish majority control and ownership of the company.
This is a more widely used funding strategy. For you to apply for bank financing – better known as a bank loan – you will require a well-made business plan, a team full of diverse expertise, and in some cases, personal investments to demonstrate your commitment to your business.
However, acquiring a bank loan can be challenging for many businesses, especially if they don’t have a clear business plan.
However, if you’re able to provide a clear mission statement and convince them that you can operate your business profitably, you may be able to get the funding needed for your business.
Some bank loans require you to meet specific criteria before you can apply for a loan. These criteria can relate to your business size or geographic location. Make sure to check the requirements before applying.
This method means converting your property or assets into cash by selling them on the open market. Liquidation is considered an unconventional way to raise capital, but when your inventory’s value negatively affects your company’s net worth, it is worth considering.
What you’re doing here is called a voluntary liquidation, where you need to raise cash for new investments or purchases. Liquidation can provide you with quick cash and help your company stay afloat when you desperately need capital.