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So, you’ve been thinking about starting your own business and the day has finally come and you feel that you are emotionally and mentally prepared for this venture but the real question is are you financially prepared?
You have a great idea, you have a great plan, you have all this ambition but do you have enough cash?
Unfortunately, there isn’t a set answer with a magic amount because the cost depends on so many different factors. So, let’s go through this step by step and determine if you are financially ready to start that new business venture!
First, we will need to determine what your initial startup will be to get your business off the ground.
If you are a brick-and-mortar business you will require more of an upfront investment than if you are a web-based business. If you are opening up an actual store you will either need to purchase a property or put a large deposit on a commercial or retail space.
Both types of business will be responsible for a business permit, license, and/or incorporation fees; you will need to check with an attorney or a CPA to determine what you will need.
Here is an idea of some upfront costs for both types of business.
The overall cost will depend on many different factors, for instance, your taste and the clientele you are trying to attract. For example, if you are opening up a business selling luxury brand names you may have to invest much more in your store furnishings, whereas if you are a business specializing in technology you will need to offer a state-of –the art website.
You will need to keep a good distinction between what would be something that will help your business flourish and what is an absolute necessity to help flourish your new business. Do you need a more expensive retail space in a high traffic area? Do you really need an office or can you work from home until you have some profit? Do you need the latest technology or can you use your old system for a while?
Create a list of all your startup costs and then categorize each item by “needs” and “wants”. Ideally, you will have enough startup cash to cover both categories, but you may need to tweak the “wants” category a bit and that is OK!
Starting a new business is tough enough, but starting drastically in the hole could mean failure right off the bat. The more debt you have to start, the longer it will take before you start seeing any kind of profit. Focus on making sure to have enough to purchase everything you “need” to start your business and then go from there.
Now that we have determined you are OK to start let’s make sure you are able to cover ongoing monthly costs. Hopefully you will start generating revenue right away, consider the following list that will eat up a lot of your revenue, and suppose it will take you months before you see any kind of profit. You must ensure that you will be able to cover these costs and still be able to come out on top:
In most cases, it would be ideal to start with just the bare minimum of what you “need” to launch your business and then, as you begin to generate a profit, you can add employees, contracts with more vendors and increase your advertising budget (to just name a few ideas).
Experts recommend that you have enough cash to cover at least six months’ worth of ongoing expenses the day you open your doors!
Lastly, don’t forget about yourself. Unfortunately, chances are you will not make too much profit in your first year of operations, if any profits at all. You will need to take into account the fact that you still need to live, and you need to calculate how much you will need to survive at least the first six months of business. This is just like doing a business budget and can be completed in three steps: track your expenses, categorize “want” vs. “need” and budget by the month.
Now you should have a good estimate of how much dough you need to launch your new business venture but you don’t have it just yet, don’t fret, you have options. One option is to wait and focus on putting monies aside for your new business venture and revisit all the above again in six months. If it is critical that you start your new business venture now, there are many business loans available for small business owners. Make sure that if you go with option #2 you add that cost into your monthly expenses. Or you can try to find an investor and make sure, if you go that route, you have everything documented and legally binding.
HAPPY PROFIT BUILDING!
BY: Raizy P. Grossman