Everyone knows you have to spend money before you can make it – but just how much do you need? When asking other entrepreneurs how they got their start, their dollar amounts likely varied. You’ll want to consider multiple factors to get the correct dollar amount for your business startup.
Don’t Let Lack of Money Stop You
Before diving into some of the basic costs you’ll likely encounter as you start a business, it’s important first to establish that a lack of money shouldn’t prevent you from starting your business. There’s too much at stake to let your passions fall by the wayside.
“[Starting a business is] an opportunity to create unique products and services, bring your ideas to life and create something truly valuable for your customers, employees, suppliers and peers,” says an article from IncFile. “A lack of money doesn’t stop you doing any of those things. It might mean you have to manage operations more carefully, pay closer attention to finances, drive your product to market sooner and slow down your expansion plans, but none of those areas alone will kill your business.”
The article continues by pointing out that practicing discipline from financial control will improve your ability to make decisions, fight through the hard times, express more creativity, and achieve greater and more fulfilling success.
Determining Startup Costs Through a Series of Questions
With your passion in hand, you’re ready to make a few estimations regarding startup costs. This will help prevent you from mismanaging your money, which is one of the primary reasons that startups fail within the first five years.
Your unique needs must be carefully evaluated. Consider creating a spreadsheet to record numbers as you answer the following questions:
- Can you project your cashflow?
Cashflow projections help you determine whether or not you can keep your doors open. Try to be realistic rather than optimistic to get more accurate numbers. Consider all sources of revenue, including sales profits, crowdfunding campaigns, your own cash, and investments.
Once you have these projections, consider emergency situations that might occur. For example, a natural disaster might shut you down for a few weeks. Do you have enough money to make payroll and cover other business expenses until you can open the doors again?
- Can you pay your own personal expenses alongside your business expenses?
“Because running your own small business isn’t just a business decision, but a lifestyle decision, it’s important that you measure all aspects of your lifestyle to understand how your lifestyle could financially commingle with your business ventures,” explains Mike Kappel of Allbusiness.com. “Consider your lifestyle now. Who depends on you to make an income, and what will happen if you need to cut back? What are you willing to sacrifice?”
It might be a while before you get a paycheck. You have to eat and have a roof over your head, so some quick calculations will determine that you have enough funds before you begin.
- Can you cover professional expenses?
Even if you’re the sole owner, employee, and financier of your startup, you’ll still have to hire a few professionals, even if they only operate on a freelance basis. You’ll need an accountant to monitor your books, an attorney to draft contracts, an insurance broker to protect your business, etc.
At some point, you’ll likely need a marketing manager, a janitor, sales reps, and a variety of other employees to keep things running smoothly. These expenses won’t all come up at once, but you can and should expect them at some point during your journey.
- Do you have additional financing coming down the pipeline?
Most business owners don’t finance their startups straight from their pockets. They borrow money, work with an investor, or run crowdfunding campaigns. There are often several rounds of funding, so if you have additional rounds coming up, this can instill confidence towards success.
Mortgage loan officer Herndon Davis points out a few more options for your finances: “Additional funding can come through establishing business credit and different lines of credit through piggybacking scenarios,” he told BusinessNewsDaily. “There’s also small business loans and angel investors willing to step in at certain stages…At this point, your startup should show…a clear business plan on how to grow with additional funding.”
No matter where you plan to get your funding, don’t count your chickens before they hatch. You can’t guarantee a certain dollar amount, so don’t spend any money until you have it in your hand.
These questions should help you form a more accurate estimation of your startup costs than any approximations found online. Apply your unique situation to these questions and manage your money intelligently to see profits.