How Much Money Will You Need to Start Your Own Business?
You might be surprised to discover that some of the world’s fastest-growing and most successful small businesses started on a shoestring. Start-up costs well below $5,000 are common — and some ventures require even less cash up front. Yet other businesses may cost much more to get off the ground.
Regardless of your financial resources, you’ll want to calculate your start-up costs in advance. By doing this, you can design a plan that will meet those expenses and keep your business moving ahead during its critical early days.
Here’s a quick rundown on the factors that will determine the cost of launching your new enterprise:
One-time costs. These include a wide range of special expenses associated with planning, setting up and opening your business:
- Legal costs. You may need to hire a lawyer to help you negotiate regulatory issues, create employment contracts for key workers and perform other legal services.
- Licenses and permits. These costs may be negligible or substantial depending upon the nature of your operation and where you do business.
- Real estate deposits and improvements. If you rent or lease space for your business, your landlord will want a deposit. You also may need to pay for structural changes required to prepare the space for your business.
- furniture and fixtures. You might get by with a couple of desks, computers and a lamp or two at first. But you´ll likely spend significant sums on furniture and fixtures if you´re opening a restaurant or a retail store.
- Inventory. Service businesses have little — if any inventory, but retail and wholesale companies often spend large sums in this area.
Working capital. This is the money you will need to keep your business going until you can cover your operating costs out of revenue. Plan to have enough working capital on hand to cover items such as the following during the first few months that you are in business:
- Replacing inventory and raw materials. You will need to fund the purchase of inventory out of working capital until you start to see cash from sales, which could take months.
- Paying employees. Even the most loyal worker wants to get paid on time, regardless of how much or how little cash your firm earns during its first months.
- Paying yourself. Unless you’ve made other arrangements, you will need to withdraw some money to support yourself.
- Debt payments. If you’ve borrowed money to get started, you probably have to begin repaying it right away. Missing your first loan payments won’t do your credit rating any good.
- An emergency fund. You need some cash on hand to cover unforeseen shortfalls that may result from any number of factors — delays in getting your space ready, a client who is slow to pay or slower-than-expected business.