How Much Cash Do I Need to Launch My Own Business?
By Andrew Patricio
April 15, 2015
Small Business & Entrepreneurship
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By the Small Business Experts at BizLaunch.com
Whether you’re launching a brand new business or launching a new division of an existing one, it’s crucial that you stop and figure out exactly how much money you’ll need. The biggest mistake entrepreneurs make is over-estimating revenues and under-estimating expenses, when in fact the opposite approach should prevail. This kind of “entrepreneurial optimism” is usually welcome, but it can prove to be dangerous when planning hard numbers.
A new business or initiative will always require time before it starts to generate revenue. Excited about your new venture, it’s easy to think customer cash will start rolling in quickly, when in reality, every small business goal usually takes longer to achieve than we think it will.
When calculating your startup budget, you first need to consider your operating and capital costs.
What are operating costs?
Operating costs are “soft” expenses you will pay every month, including items such as rent, hydro, telephone bills, advertising, wages and office supplies.
What are capital costs?
Capital costs include “hard” expenses that are typically one-time investments to get up and running, such as equipment, inventory, vehicles, buildings, renovations and computers.
TIP: Your startup budget should include all of your one-time capital costs plus six months of monthly operating costs.
Revenue
What about revenue during those first six months? The key is to assume that you will make no money at all. You likely will—but if you can raise sufficient funds to cover all costs for half a year, any income you earn is a bonus. Give your business time to grow by relieving revenue pressure. By excluding revenue projections for six months you will be over-estimating expenses and under-estimating revenues—leaving you free to work on your business instead of scrambling for sales.
You must do two things to calculate a realistic startup budget: research the numbers thoroughly and be conservative.
Researching your numbers
Make a list, or obtain a sample for a similar business, of everything you’ll need to start your business, ensuring you include every conceivable expense item—no matter how small. Then, pick up the telephone or go online to price each item and contact suppliers for estimates.
Price out used equipment versus new stuff, shop for items on sale, and always avoid “ballpark” estimates by rolling up your sleeves and accurately pricing everything you will need. Keep detailed records of all expenses you have researched just in case a lender asks you for specific numbers; it will also make it easier to go and purchase those items when you have the money to do so.
Be conservative in your estimates
Remember: you don’t want to under-estimate expenses. Be generous but realistic when identifying the items and services you will need to properly launch your business. Plan for unforeseen costs by adding a ten percent contingency fund to your budget. If you simply can’t live without revenue for six months, enter conservatively low sales numbers into your calculations.
Once you’ve figured out your six-month startup budget, you are ready to go out and raise that money!
How much did it cost you to launch your business? Tweet us your story at @StaplesCanada!
Whether you’re launching a brand new business or launching a new division of an existing one, it’s crucial that you stop and figure out exactly how much money you’ll need. The biggest mistake entrepreneurs make is over-estimating revenues and under-estimating expenses, when in fact the opposite approach should prevail. This kind of “entrepreneurial optimism” is usually welcome, but it can prove to be dangerous when planning hard numbers.
A new business or initiative will always require time before it starts to generate revenue. Excited about your new venture, it’s easy to think customer cash will start rolling in quickly, when in reality, every small business goal usually takes longer to achieve than we think it will.
When calculating your startup budget, you first need to consider your operating and capital costs.
What are operating costs?
Operating costs are “soft” expenses you will pay every month, including items such as rent, hydro, telephone bills, advertising, wages and office supplies.
What are capital costs?
Capital costs include “hard” expenses that are typically one-time investments to get up and running, such as equipment, inventory, vehicles, buildings, renovations and computers.
TIP: Your startup budget should include all of your one-time capital costs plus six months of monthly operating costs.
Revenue
What about revenue during those first six months? The key is to assume that you will make no money at all. You likely will—but if you can raise sufficient funds to cover all costs for half a year, any income you earn is a bonus. Give your business time to grow by relieving revenue pressure. By excluding revenue projections for six months you will be over-estimating expenses and under-estimating revenues—leaving you free to work on your business instead of scrambling for sales.
You must do two things to calculate a realistic startup budget: research the numbers thoroughly and be conservative.
Researching your numbers
Make a list, or obtain a sample for a similar business, of everything you’ll need to start your business, ensuring you include every conceivable expense item—no matter how small. Then, pick up the telephone or go online to price each item and contact suppliers for estimates.
Price out used equipment versus new stuff, shop for items on sale, and always avoid “ballpark” estimates by rolling up your sleeves and accurately pricing everything you will need. Keep detailed records of all expenses you have researched just in case a lender asks you for specific numbers; it will also make it easier to go and purchase those items when you have the money to do so.
Be conservative in your estimates
Remember: you don’t want to under-estimate expenses. Be generous but realistic when identifying the items and services you will need to properly launch your business. Plan for unforeseen costs by adding a ten percent contingency fund to your budget. If you simply can’t live without revenue for six months, enter conservatively low sales numbers into your calculations.
Once you’ve figured out your six-month startup budget, you are ready to go out and raise that money!
How much did it cost you to launch your business? Tweet us your story at @StaplesCanada!