You’ve got the “big idea.” You’ve got the drive. But – do you have the money you need to start that new business you’ve always dreamed about?
The first thing you should know is there’s no way of predicting exactly how much money you will need to start a business and maintain it for years to come. There are so many factors that can determine the success of a business, many of which you will have no direct control over, and cash flow is a big one.
That said, there’s a lot you can do to prepare for the inevitable ups and downs and decrease your overall financial risk, no matter what unexpected costs might come your way.
We’re going to assume you’re in a position of “bootstrapping” your business, which means your primary funding source is your own pocket. With that in mind, here’s how to come up with a reliable estimate of how much money you’ll need to start your business and keep it going for years to come.
Typical business expenses you’ll need to cover
When you’re first getting your business up and running, you’ll likely need to make some rather large initial investments. This reality might be a little hard to stomach considering your business won’t be bringing in much money right away (if any).
Depending on the nature of your business, these initial costs can add up to be pretty substantial (potentially tens of thousands of dollars), so you’re probably going to feel like your bank account is hemorrhaging money in the early days. Welcome to the life of a startup owner.
Some initial costs you could face when starting a business:
- Business permit, license, and/or incorporation fees
- Down payment on retail or office space
- Marketing website
- Business stationery (business cards, letterhead, etc.)
- Computers, software, and other office equipment
Learn more about the typical challenges startups face and how to overcome them.
Once the upfront costs are covered, you’ll need to think about potentially ongoing expenses and work those into your business budget as well.
Don’t have a business budget? Here’s why you need one.
Some examples of ongoing business costs:
- Rent or mortgage for your retail or office space
- Employees or contractors
- Loan payments
- Advertising, marketing, or public relations
- Supplies and inventory
- Accounting and legal fees
Rainy day fund
You have your initial costs covered as well as an idea of what to expect for ongoing monthly expenses. But just as you would for yourself and your family, you should always have an emergency fund for your business.
Just as you would for yourself and your family, you should always have an emergency fund for your business.
Be sure to set aside as much cash as possible to keep the business afloat in the event of a slow market, decreased sales, or any unexpected major expenses that happen to come along and punch your budget in the gut. Having a successful business for the long term is all about risk management and preparing for the unexpected.
Personal living expenses
All the while, you’ll still need to eat and maintain a roof over your own head, right? And maybe attend a workshop or networking event, or even go out for a beer and a baseball game now and then. You are, after all, still a human being, not a robot.
Make sure you have enough cash to cover both your business and personal expenses through at least six months of operating your business. This will help to keep your finances out of the red, just in case the business isn’t profitable right away.
If creating a personal budget is particularly daunting for you, start by tracking your expenses and determining your typical monthly spending. You can also look into some personal accounting software like Mint to help you organize your personal finances.
Want some guidance?
We can help with putting together a realistic budget for your startup, so you can be prepared for all the what-ifs before they happen.
Reach out to schedule a consultation or feel free to fire away with any related questions in the comments below!