Show Me The Money: Funding Your E-Commerce Business

February 10, 2021 / By Lewis Robinson

Do you dream of shaking up your life and becoming an entrepreneur? One of the most accessible ways to join the ranks of small business owners is by starting an e-commerce business. It's not without risk, but if done right, the pay-off can be tremendous. Once you decide to take the plunge, help ensure success by laying out a financing plan that fits your needs.

Create Your Plan
While there are distinct differences between an e-commerce business and a traditional brick-and-mortar store, the start-up principles are similar. Read up on the basic steps to start a business in order to develop your business plan. You'll need to think through what products you will provide, who your ideal customer is, and how to connect the two.

Remember that your business plan is always a work-in-progress, as you'll need to adjust to changing market conditions continuously. As the saying goes, "Don't let the perfect be the enemy of the good." Create a flexible plan that outlines your overall vision and purpose for your e-commerce venture while leaving room for fine-tuning the details over time. Once you've done that, you're ready to move on to the next step, finding the money necessary to get it off the ground.

Calculate the Cost
The world of e-commerce is growing at an incredible rate. Experts predict a nearly 250% increase in e-commerce sales in 2021 as compared to 2014. That's a lot of transactions, which translates into a lot of potential profit for successful e-commerce business owners. Venturing into this dynamic market is typically less costly than opening a physical shop, but there are costs associated with it. Before you launch, make sure you have a clear picture of how much it's going to cost.

When developing your start-up budget, some variables to consider include inventory, storage, shipping costs, and insurance. Depending on your specific situation, you may also have costs associated with licenses, permits, marketing, and information technology. Don't forget to factor in often-overlooked expenses like increased costs for utilities and supplies like paper and printer ink.

Figuring out the best financing plan for your situation involves answering some basic questions such as precisely what you need the money for, how much money you need, and how quickly you need access to it.

Find the Funding
Once you know how much money you need, your next task is finding it. Basically, financing options fall into one of two categories; either you finance yourself through personal loans and credit cards or bring on investors to provide outside funding. You'll need to weigh the risks and benefits of all options before making a final decision. Funding yourself allows you to retain total control over your business and profits but puts your personal finances on the line. On the other hand, receiving funding from investors transfers much of the financial risk from you to them but also typically means giving up some control in the form of equity and profits.

Providing your own funding can be the quickest and least frustrating choice for many new business owners. While there are traditional small business loans available through banks, most entrepreneurs won't qualify for them due to lacking a stable track record. A better bet for many new e-commerce business owners is to look into a business credit card or a business line of credit. Both offer the flexibility of only borrowing what you need when you need it instead of a lump-sum loan that you take out all at once, which can be a great advantage when you're just starting.

If a credit card or line of credit is outside the realm of possibility right now, but you're determined to kick off your e-commerce business anyway, why not look to crowdfunding? Whether informally through family and friends or on one of the many websites, raising money via small investments from an extensive network of people is an increasingly popular way to get a business off the ground. Crowdfunding straddles the categories of personal versus outside financing since you can set it up as either donation-based or equity-based. The former offers no financial reward to contributors, while the latter provides them with equity shares in your business.

As your business grows, you'll likely find that lenders are more receptive. For example, if you find yourself in the enviable position of experiencing an explosion of demand for your product, you might qualify for purchase order financing. This type of loan provides you with the cash needed to meet the sudden influx of orders promptly. Of course, you'll pay interest on the loan, but the increased profits and satisfied customers are likely well worth that relatively small cost.

Once your business is on solid footing, you might consider a loan guaranteed by the Small Business Administration (SBA). These loans can be difficult and time-consuming to acquire, but they offer many advantages for the lucky recipients, including flexible terms and competitive rates.

If you're ready to launch your own e-commerce business, there are plenty of financing options available. Invest the time needed to find the best fit for you, then enjoy the pay-off as your business grows.

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