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Starting a business is exciting. It’s invigorating! It’s passion pursuit.
It feels like all your dreams are coming true and you feel surrounded by possibilities. However, starting a business can be expensive. If you’re thinking about starting a business how will you know how much money you need to start. Here are some things to consider.
Think about your pay
When you quit your job to start a business or to go full time in a business you’ve been running on the side, the first important money decision is about your personal pay. Most frequently a new businesses doesn’t have the ability to cover a salary for an owner within the first year. To decide whether or not your business is able to support your pay take a look at the income and expenses. If the business is able to cover its expenses and still has money leftover you may be able to take a paycheck or draw. If the business doesn’t have any money left after paying bills it may mean that you as the owner need to forgo a paycheck for a certain amount of time to get the business foundation on solid footing. Know too that your pay may vary depend on sales. If you want to make more money, you need to sell more! Consider saving 6-12 months personal living expenses prior to quitting your job. If this feels like an insurmountable task weigh the risks. Are you more comfortable staying employed for a longer period of time, or would it be better to focus all your energy on income production in the business in order to allow for your pay?
Next, think about your startup costs
What do you need to start your business? This can vary greatly depending on the type of business you’re opening. An online business is going to have very different opening expenses than a brick and mortar business, or a physical business. When open a physical location start up costs can range from $50,000-$150,000. My recommendation when starting a physical business is to add about 25% to your project investment amount. Things always cost more and take longer than you expect. Better to be prepared with additional funds than to get 80% of the way there and have to stop. Online business investment can be as little as $500. The real cost of an online business is in the area of marketing and sales. In order to get your first clients you might need to invest heavily in Search Engine Optimization (SEO), online ads, social media campaigns and the like.
Make sure to have solid budget
Make sure to have solid budget projections prior to quitting your job. What are you selling and how much does that cost to buy? How many clients do you need to get to cover your expenses? What are your expense? What do you expect the business will need to generate monthly in order to cover expenses, your pay and produce profit? Run the numbers. They aren’t usually ever accurate when you first begin but at least they give you some frame of reference, so idea of what you could sell and how much your expense should be.
It sounds very appealing to “bootstrap” your company, or not invest any real money into the business or solicit outside investors.
It is a wonderful way to start a business, but it’s not always the best way to start a business. Why? Because frequently investments aren’t made that would allow your company to thrive at a much higher level. (entrepreneur story- tim ferris $84k) Finding investors, getting an Small Business Administration (SBA) loan isn’t as difficult as you might think. Getting the money you need to start your business could be the difference between success and failure.