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How to Finance your business in Germany

Financing your business is one of the biggest hurdles in starting a business and the reason many give up on the dream of owning a business. But in this article, we’ll explain what financing options you can use to get your business on the road to success.

Setting up a financial plan

A good financial plan is the cornerstone of your business idea. In a financial plan, you calculate how much money you will need for your business idea (start-up capital) and how you will finance your business concept until it is profitable. These calculations include expenses such as business equipment, rent deposits, living expenses, development costs, investment costs for machinery, and taxes.
You compare the projected costs to the expected income.
It is important to make sure that your calculations cover your capital needs, but also build in a buffer for unforeseen events. A rather short-term liquidity planning with incoming and outgoing payments is also part of the financial planning. Furthermore, you need to identify the relevant sources of financing (equity, debt) for your project. For high-tech start-ups, secure access to investors at the right time is also an important step.

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Many start-ups calculate with a budget that is too tight and then run out of money halfway through, either because the business does not go as well as hoped or due to some other unexpected event. You should always include a buffer in your financial planning.

We would like to list the most important and popular options here:

 

 

1. Self-financing

This type of financing is of course the most uncomplicated and „cheapest“. The problem is that it can take a little longer to raise the required amount. However, the advantages outweigh the disadvantages: you retain full control over your company and you have a 100% share in the profits.

 

2. Friends & family

If you know people in your family or circle of friends who would be willing to support your idea financially, don’t be afraid to present your idea to them. Maybe they can help you out!

 

3. Grants (from the Government)

Most of these programs include loans with attractive conditions and more rarely grants that do not have to be repaid.

 

4. Crowdfunding

One of the newest and most popular variants of financing is Crowdfunding. The big difference to traditional financing options is that the number of investors is much higher. This is because it is not just a single company or individual who invests here, but a broader mass. In Crowdfunding, a minimum amount of capital is set before an action starts. As a reward, each capital provider (Crowdfunder) receives a small return. In Crowdfunding, a distinction is made between several types:

Crowdfunding itself, Crowdinvesting, Crowdlending and Crowddonation.

There are many different websites for creating your own Crowdfunding campaign, a good one for that purpose in our opinion is Startnext.

 

5. Business Angels

Business angels are mostly successful company founders who have very high assets through the sale or IPO of their own company. Through their years of experience, they are very skilled with business start-ups and have widespread networks that they can make available to the founders.

 

6. Venture Capital

With venture capital, investors provide founders with appropriate capital depending on the development phase of their product (or service). In return, the investors often act as advisors to the young entrepreneurs and also receive shares in the company.

 

7. Inncubators and accelerators

It’s also possible to get help from an incubator or an accelerator. they can support startups with venture capital, by providing office rooms, by giving advice and they also can help with the analysis and development of your business idea.

 

7.1 Participation in founder competitions

Sure, it’s not calculable money, but it’s worth a try: Entrepreneurs can also participate in a start-up competition with their project. There is a huge selection of start-up competitions for all industries and you can win a prize in the form of money for your business creation.

 

8. Loans from the bank

This is the classic method of getting a loan. For larger purchases, a loan from the house bank is one method of raising the necessary capital to start your business.

Banks provide the money for a certain period of time and expect a reasonable interest rate in return.

 

For a more detailed description of the financing options and to find out exactly which one fits your project perfectly, check out our all-in-one online-guide and join our community and ask there!
 

 

Tip: Tax advisors

Tax advisors are expensive in Germany, but in the end, they will save you a lot of money in the long run. They can register your business for you and take care of your tax returns. They will help you avoid many mistakes with taxes and, for example, health insurance. It is always good to have a good relationship with your personal tax advisor in Germany. Therefore, we strongly recommend you to consult a tax advisor in Germany before you make a lot of sales with your company.

 

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