Raising Money for Your Business 1
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Money: What You'll Need and Where to Get It
What does it take to turn your business plans and ideas into a viable business? The answer, in most cases, is money. The amount of money and the time at which that money needs to be invested will vary from one small business to another.
For instance, some businesses start out with only a small investment on the part of the owner and are either kept small or are expanded slowly using the profits of the business to finance growth. Other businesses start out small and then turn to outside lenders or investors for money to expand. Still others need hundreds of thousands or even millions of dollars to launch their businesses and require sophisticated management skills as well as investors with deep pockets.
The bigger the investment required to launch or run a business, the bigger the risk to the owner. Thus, your own willingness and financial ability to accept risk will be a determining factor in the kind of business you start and its eventual size. This chapter presents some of the financing options you may want to consider at various stages in your business.
How much do I need to start a business?
You need enough money to acquire or produce what you sell, market and deliver the product or service to the customer, keep the business running, and keep your personal bills paid until the business is profitable. If you are starting a service business and will run it in your spare time or if you have a spouse who has a full-time job that will cover all your living expenses and health insurance costs, you might be able to start your business with as little as $200 to $300—or possibly even less. If the business you are starting will require you to purchase expensive equipment, machinery, inventory, raw materials or rent space, hire employees, make significant outlays for advertising or promotion, and/or quit a job that you now rely on to pay your bills, you will need significantly more money to start the venture.
The best way to determine exactly how much money you will need to start your business is to use a worksheet similar to Table 9.1 below to estimate your one-time start-up expenses and the regular monthly costs of doing business. Because it can take time to get your first customers (and collect from them if you have to bill them), you should plan on having at least enough money to cover start-up expenses and three months of operational expenses.
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