Finance is an integral part of the economy. The companies and people that make up this sector perform a variety of functions, from investing and saving to lending and borrowing. Given their far reaching effects on society, there is a high demand for starting a finance company.
We have a selection of articles for how to start a variety of finance-related businesses that can help you get started. Choose a link from the list below to start on your path to success.
Starting Your Own Finance Company
One of the most important factors in starting a finance business is to know how your company will stand out from the competition. This means having unique products and/or services, an innovative business model, and offering outstanding customer service. Being able to offer something that your competitors cannot is essential for long term success. If you meet this requirement, there are various ways to start a finance business.
Starting a finance company is different from starting an investment bank, which typically serves as the middleman between companies and individual investors. A financial institution can offer products or services that are related to financing or credit, but are also unique enough to make them stand out. These include equipment leasing, private mortgages, factoring, and offering merchant services.
Speaking to professionals in your area who are already in finance is very important before starting your own finance company. For example, if you are considering offering leasing services, it would be helpful to speak with businesses who are already using equipment leasing or factoring because they will have insights into the challenges other finance companies face.
13 Steps to Starting a Finance Company
A finance company requires extensive knowledge in order to offer successful products and services. It is essential that you know how your business model will work before getting started.
Here are the 13 steps to starting a finance company:
- Obtain the appropriate financial certifications or meet specific licensing requirements. This will depend on the type of finance company you plan to start. Common financial certifications include CPA, CFA, and CFP. If your business will be registered with the SEC or CFTC, another certification is required.
- Choose a legal business structure for your finance business, whether it’s a sole proprietorship, limited liability company (LLC) or corporation.
- Conduct market research to see whether there is demand for your products or services in your target market.
- Write a business plan that includes information on your competition, market analysis, financial projections and marketing strategy.
- Hire employees who understand the financial services industry.
- Set up bank accounts for payroll and keeping company funds separate from personal finances.
- Start building relationships with vendors so they will be willing to offer better deals when you need to purchase supplies or equipment for your office.
- Renovate or decorate your office space to give it a professional atmosphere.
- Start marketing your finance company by obtaining listings on local directories, setting up social media profiles and sending out press releases.
- Obtain any necessary licenses and/or permits from the city or state in which you are doing business. This also includes applying for a federal tax identification number so you can hire employees.
- Launch a website with the necessary information your potential customers will need, including product and service descriptions, prices, contact information and customer testimonials.
- Train your employees on how to use new software or equipment that they will need to efficiently and effectively do their job.
- Create a detailed exit strategy so you know how you’ll handle the business when it comes time to sell it, retire or close the company for another reason.
How Much Does It Cost To Start a Finance Company?
While the costs of starting a finance company will vary based on size, services and legal structure, there are some common start-up expenses to consider.
Tangible costs include things like equipment leases for your office space or renovations to make it look more professional. An in depth business plan with a marketing strategy is also necessary when you start a new company, which will require expenses for professional services.
Intangible costs include employee salaries, training and marketing your business. You also need to consider fees associated with filing paperwork with the government or paying licensing fees.
The total amount you spend will depend on how much of the work you are able to do yourself. For example, if you are willing to be an independent sales person, you can lower the costs associated with hiring employees.
Regardless of what type of finance company you plan to start, it’s important to find financing that will fit your company budget. You should consider how much money you have saved or can borrow from family and friends before looking into other options like getting a business loan.
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How to Start a Finance Company FAQs
What are the Different Types of Companies in the Finance Industry?
The financial services industry includes companies that offer a number of different types of services.
For example, banks are lending institutions who give out money for mortgages, car loans and personal loans. Investment banks help companies or individuals find investors for starting new businesses or funding other projects. Wealth management companies and financial planners help people invest their savings and create financial plans to meet long-term goals. Insurance companies offer policies for protecting people businesses and their property, whether it's health care coverage, business insurance or homeowner's insurance.
How Much Does It Cost to Start a Business in the Finance Industry?
The cost of starting a business in the finance industry will vary depending on how much you are willing to invest. Costs can include equipment leases, renovations to your office space, legal fees and marketing expenses.
What Business Models are Common for Finance Companies?
Finance companies can operate based on one of three business models.
The fee-for-service model describes companies that charge customers for specific services. This type of business requires the most up front costs because it requires equipment and employees, but can also be very profitable.
The commission model is based on earning a percentage of every sale or transaction your company completes for its clients. This model typically does not require much equipment or employees, so it can be a good option for new businesses.
The fee-based model is similar to the commission model because you earn a percentage of every transaction. However, this type of business also charges customers fees for its services as well as larger account balances. This means you will need less up front costs than the other models, but you will need to have a larger pool of customers.
The finance company business model you choose will depend on your own interests and expertise, as well as how much money you are willing to invest.