Transcript

A physical therapist starting a business might likely require external funding to launch a business. The amount of funding required will be highly variable depending on the type of business. For example, a PT influencer might require very little or perhaps no funding while a PT developing an app may require significant funding.

Let’s discuss some of the common reasons why external funding may be required.

Initial capital requirements

• Setting up the business: Starting a physical therapy business (e.g., a wellness clinic, telehealth platform, mobile PT service) requires a significant initial investment. This might include renting or buying space, purchasing equipment (e.g., therapy tables, exercise machines, treatment tools) and covering legal and infrastructure (e.g., website, software).

Cash flow for operations

• Managing day-to-day costs: Even if the business is profitable, managing day-to-day expenses like payroll, rent, utilities, and supplies can be challenging. External funding helps smooth over cash flow gaps in the early months or years while the business generates increasing revenue

Marketing

• Building awareness: When starting a new physical therapy business, it’s essential to market the business to potential customers. This could involve online advertising, social media campaigns, branding, and community outreach. External funding allows the business to invest in differentiating itself from other providers.

Hiring/talent acquisition

• Building a team: Adding staff such as additional PTs and PTAs, administrative personnel, or marketing and technology specialists can be extremely expensive and potentially impossible without external funding.

As you can see there are an infinite number of scenarios that could necessitate the need for external funding. Let’s explore the most common ways entrepreneurs fund their business initiatives.

How Entrepreneurs Fund their Business

The sources of funding are arranged from most to least common. You will notice that the most common sources of funding are internal and informal, while the less common sources of funding are external and formal.

• personal funds
• income from another job
• borrow or receive donations from friends and family
• use a bank loan
• credit card cash advance
• investors, grants, and crowdfunding

Funding Sources

Funding a new business can be one of the most challenging aspects of entrepreneurship. There are several methods available, each with its pros and cons. 

Personal Savings

• Pros: No debt, no equity dilution, maintain full control
• Cons: Risk personal savings; can create financial strain
• Best For: Small businesses, low-cost startups, or when you only need a small amount of capital

How to Use: Dip into your personal savings. This is the most straightforward way to get started without external interference.

Friends and Family

• Pros: Flexible terms, potentially no interest or low-interest rates
• Cons: Risk of damaging personal relationships, potential pressure to succeed
• Best For: Early-stage businesses or startups where traditional funding is not yet an option

How to Use: Approach friends or family members who may be willing to invest. It's essential to set clear terms and formalize agreements to avoid misunderstandings.

Bank Loans

• Pros: Clear repayment structure, no equity dilution
• Cons: Hard to qualify as a new business, debt burden, interest payments
• Best For: Established businesses with a good credit score or a solid business plan

How to Use: Approach banks or credit unions for a traditional business loan. Many lenders offer small business loans, but you’ll need to provide a detailed business plan and personal credit history.

SBA Loans (Small Business Administration)

• Pros: Lower interest rates, longer repayment terms, government-backed
• Cons: Long approval process, strict eligibility requirements
• Best For: New businesses with solid financials or a good track record
  

How to Use: SBA loans are designed to help small businesses and startups, with lower rates and favorable terms. However, they require a good business plan and collateral.

Venture Capital (VC)

• Pros: Access to large amounts of capital, mentorship, and industry connections
• Cons: Loss of control, highly competitive
• Best For: High-growth, scalable businesses in sectors like tech or biotech

How to Use: Venture capitalists invest in early-stage companies with high growth potential. They typically take an equity stake in exchange for funding and can offer valuable guidance. However, getting venture capital backing is highly competitive and often requires a proven business model or product.

Angel Investors

• Pros: Flexible terms, expertise, and mentorship
• Cons: Dilution of equity, potentially high expectations for growth
• Best For: Early-stage businesses that need both funding and strategic support
  

How to Use: Angel investors are individuals who provide funding for startups in exchange for equity or convertible debt. They are more willing to take risks than venture capitalists, but usually expect high returns.

Crowdfunding

•    Pros: Access to a broad audience, typically non-dilutive, marketing benefits
•    Cons: Time-consuming, not always successful, fees for platforms
•    Best For: Consumer-focused products, creative projects, or businesses with a strong community appeal

How to Use: Platforms like Kickstarter and GoFundMe allow businesses to raise capital through small contributions from a large number of people. Reward-based crowdfunding is popular for product launches, while equity crowdfunding allows investors to own shares of the company.

Grants and Competitions

• Pros: Non-dilutive, no repayment required
• Cons: Highly competitive, limited availability, often requires a specific type of business
• Best For: Businesses with innovative products or those in specific industries (e.g., tech, education, healthcare)
  

How to Use: Apply for government grants, local competitions, or nonprofit-backed initiatives that offer funding to startups. Many grants have specific eligibility criteria, and the process can be time-consuming, but they provide funds without the obligation to repay.

Sponsorships or Strategic Partnerships

• Pros: Potential for large amounts of funding or resources, access to larger markets
• Cons: May require giving up some control or aligning with another company's agenda
• Best For: Businesses that complement or align with an established company or brand.
  

How to Use: Approach large companies that may be interested in your product, technology, or business. In exchange for funding or resources, you may offer branding, distribution, or exclusive access.

Summary

Choosing the right way to fund your business depends on your business type, industry, growth prospects, and financial situation. Personal savings and friends and family are good for low-cost startups, while venture capital, angel investors, and crowdfunding are ideal for high-growth, scalable businesses. Bank loans, SBA loans, and grants and competitions can provide support for established businesses with a clear financial plan. Ultimately, a mix of options may be necessary, depending on your circumstances.

Action

Create a spreadsheet that estimates the amount of initial funding your business will require. Use the compiled information from your financial projections to assist you in this task. Recognize that in a perfect world, you would be able to self fund the business and maintain full control. If external funding is required create a list of the funding sources most applicable to your business scenario.