When one envisages launching a business, especially for ecommerce, the financing aspect constitutes a crucial stage. Moreover, it’s a fundamental question at the time of a creation of a company, but it can also be necessary in the event of growth or of extension of the structure.
As an e-merchant, without solid funding, it’s impossible to build up an inventory of goods, to carry out communication actions, or to create a high-quality ecommerce site! Because money is the lifeblood of business endeavors, here’s a guide to finance your digital project!
Preparing the financing of your online store
Ecommerce statistics indicate that online shopping is likely to continue to grow in popularity in upcoming years, making now a great time to launch your own business. In order for your website creation project and your ecommerce strategy to be successful, it’s important to anticipate and plan for an initial financing sufficiently important to cover all your needs. This step is fundamental to secure the start of your entrepreneurial project.
How does the financing of a business work?
Very often, when project leaders are in the start-up phase, they underestimate their financial needs. The consequences can be disastrous. Therefore, try to foresee everything, and even to estimate your necessary budget a little wider, to avoid falling into this trap!
To do this, you’ll need to draw up a business plan for your store, listing your market study, your sources and methods of financing, and your financial forecasts. This document is a fundamental basis for any business creation, in order to have a clear idea of the resources you’ll need and the potential profitability of your company.
Having sufficient funding to start your business canl help you secure your launch, anticipate cash flow gaps, and also give credibility to your financing file when applying for funds from potential investors or banks.
Whether you want to be self-financing or raise money, try to think of all your future expenses:
- What inventory will you need to build?
- How much will you need to invest in creating your website, communicating, and selling? Are you going to use digital marketing specialists or agencies for your site?
- What will your costs be for rent, loan repayment, computer equipment, insurance, supplies, travel, salaries, electricity, taxes...?
- How much working capital will you need if your sales increase?
How do you begin your ecommerce business without financing?
First of all, note that it’s possible to start an ecommerce activity without necessarily having recourse to external financing such as credit, as demonstrated by many successful ecommerce business examples.
The first solution is based on self-financing. The system is very simple: if you have enough savings, it’s time to use them wisely. Your capital could be used to get started without having to borrow.
Depending on your project, note that about $10,000 is already a considerable amount of money to allow you to create a company. The advantage of self-financing? With it, you won’t have any interest to pay back and will have total financial independence.
On the other hand, it’s best to not inject all your savings into this project. It’s always better to keep a small amount of money to serve as a safety net in case you need it.
Another option for obtaining funding is to ask your family and/or friends to advance you the cash to get started. Be careful, though, as borrowing and lending money between loved ones can get complicated. If you do decide to avail of this method to get capital for your business, be sure that the terms of the loan are clearly described in a contract between you and your lender, including the loan amount, when you need to begin to pay back the advance, and the interest rate.
Another possible funding option: set up a pre-order system. The concept is very simple. It consists of inviting your customers to buy your products before building up your inventory. A strategy that’s increasing in popularity, this method allows you to collect funds quickly to set up a store. Furthermore, it’s also an excellent way to validate the interest of your offer with your target customers.
At the same time, it’s also a more eco-responsible production method, which prevents overstocking. However, to encourage people to follow you in this adventure, you’ll probably have to offer them a discount on your products. Thus, both you and your customers will be winners!
Why develop your ecommerce site before asking for financing?
Developing your ecommerce site should also be one of the first steps of your project. First of all, the financing organizations will be sensitive to your efforts. They’ll also have a better idea of your activity by being able to rely on this support.
In addition, your online store may allow you to sell your first products. From then on, it’s tangible proof that your company is on the way to success. Similarly, if you already have a certain turnover, this will undoubtedly allow potential investors to get involved with your business more easily or for larger sums.
How do you finance your ecommerce site? 7 Financing plans
To finance a store on the internet, there are multiple solutions. Some of them, like the bank loan or the recourse to business angels, are perhaps familiar to you. But there are many others... Not sure what these funding options could be? Then let us guide you!
Self-finance your ecommerce project
Self-financing means financing your business project with your own money. In this case, it means that you have immediate access to funds and that you’re not dependent on any external investor. What's more, it's also a great way to show that you believe in your success!
Of course, this doesn’t mean that you have to invest all your savings without considering the consequences. The options have evolved considerably since online shopping was created, and nowadays, there are solutions to create ecommerce sites without breaking the bank. For example, WiziShop makes it possible for you to create online stores easily, quickly, inexpensively, and without hidden costs.
Create your online store - 15-day free trial
Finance your site via a bank loan
The bank loan is without a doubt the external financing method most often used by entrepreneurs. It allows you to quickly obtain a sum of money to start the investments and the setting up of an ecommerce site. This is a debt that must then be repaid to the bank.
To take advantage of such a financing tool, the entrepreneur must first convince their banker that their online store project is viable. They must demonstrate that they’ll be able to repay future installments. To do this, it’s necessary to create a financial forecast. This is an essential document to prove the potential profitability of the project.
Another means increasingly used: crowdfunding, also called participatory financing. It consists of calling upon individuals wishing to invest in a start-up or to lend money to small and medium-sized companies through digital platforms.
Participatory financing is fundraising that takes place on the internet, via a secure platform. By this means, the entrepreneur can collect a sum of money from the general public. Here again, you must be convincing!
Internet users must be certain of the benefits of supporting your project. In addition, in return for their financial support, rewards must be provided. For example, for a small amount of money, you can offer them one of your entry-level products. For larger amounts, be more generous!
There are many crowdfunding sites today and some are considered more reliable than others. KickStarter and IndieGogo are a few of the industry staples.
Offer to partner with another company
To get your project off the ground, you may also want to consider finding a partner. This process takes time and energy. However, it can also be very profitable. By choosing a partner with skills that complement yours, it can be a real asset.
This solution can then allow you to obtain new financial means as well as additional knowledge for the future development of your online store. Moreover, by working with an associate, the difficult times are shared. You have twice as many hands and twice as many ideas working together to find solutions!
The only prerequisite is to address the right person, at the risk of being confronted with great disillusionment…
Find investors or business angels
Business angels are another means of financing that is increasingly sought after by entrepreneurs.
The idea is to collaborate with an individual who is willing to invest in start-ups, in exchange for a percentage of the company's shares. In addition to their financial contribution, the investor generally accompanies the company in its management and development. This is an excellent way to gain skills. The only downside is that with a business angel, you’ll no longer make decisions alone and will have one or more shareholders.
For example, Peter Thiel, an early investor in Facebook, and Ron Conway, an early investor in Google, are well-known business angels. They frequently invest their own funds in new companies, while sharing their entrepreneurial insight and knowledge.
Join a business incubator
Incubators are structures whose main mission is to support innovative business creation projects. The most promising projects are first selected by a committee, according to different criteria, specific to each incubator. To be convincing, your online store must be innovative and viable.
Incubators allow you to obtain financing, but they also promote the rapid development of a new business. Equipment, services, and technologies are made available to entrepreneurs, allowing them to expand more quickly.
Likewise, being part of an incubator allows you to take advantage of an ecosystem conducive to the rapid growth of a fledgling business. This helps you to meet other entrepreneurs as well as contacts specialized in consulting and development, to access logistics hubs, or to set up more innovative marketing actions that are likely to attract ever more traffic to your store.
Ask for help from public financing
Then, and entrepreneurs sometimes tend to forget this, there are financing solutions provided by the public authorities and the State. Don't hesitate to find out if any of these are available to you in your specific location.
For example, the ACRE is a financing scheme set up by the French government to support all business creators or buyers. Through it, the entrepreneur, whether acting in their own name or as a company, can benefit from an exemption, notably regarding their health, maternity, old age, disability, and death insurance contributions.
On the other hand, contributions relating to the general social contribution, the risk of industrial accidents, the compulsory supplementary pension, and professional training are excluded from this scheme. This little help for young companies, including e-businesses, is only valid if you generate less than €41,000 in sales. Beyond that, you probably won't need the ACRE to get by!
Similarly, there are other aids that can be granted by the State and local authorities for entrepreneurs. These schemes may allow you to obtain medium- or long-term loans without guarantees, without deposits, and/or without interest. Note, however, that in most cases, these loans only cover part of the company's expenses and not all of its financing.
To obtain such grants for funding, entrepreneurs are also subject to strict and specific criteria. Furthermore, it often imposes the keeping of specifications that can be restrictive. It’s up to you to weigh the pros and cons...
The creation of a company and the opening of a business inevitably involve certain costs. Although most legal forms don’t impose any minimum amount of share capital, it’s better to anticipate and foresee what budget you’ll need.
In addition to the personal contribution, there are nowadays a whole range of financial means to make your projects come true. Whether you decide to use subsidies, private aid, or business angels, don’t hesitate to inform yourself about all the funding options at your disposal. These are going to be essential levers for your company to exist and to develop as the future of ecommerce evolves.