How much money does it take to start a
business? That's similar to the question "How much does it cost to go on a vacation?" There are too many variables until you start tailoring it to your own specifications.
The best way to start narrowing it
down is to take a personal inventory of your current assets and determine how much of your own money you can put into the project. You may be in possession of considerable assets that would do you more good if invested
in your business. Start by checking off this list, then add your extras at the bottom.
COULD SELL/COULD BORROW AGAINST VALUE
- Second home, cabin, condo,
- Other residential real estate
- Commercial real estate
- Raw land
- Extra cars, truck, trailer
- Recreational vehicle
- Boat, trailer
- Savings accounts
- Retirement account
- Insurance policy
- Mutual Funds
- Pension Plan
- Inherited antiques or property-
- Household furnishings, appliances
- Electronic equipment
- Garden tractor, equipment
- Tool shop, equipment
- Piano or any unused musical instruments
- Exercise equipment
- Coin collection
- Stamp collection
- U.S. Savings Bonds
- Horses, farm animals
- Saddles, tack, equipment
After you've listed every personal holding you can think of, consider credit
that is available to you. If you have a history of paying your bills on time, you probably have a favorable credit report. Your local credit bureau will print out any information they have on you.
Sources of cash
through your good credit could be your credit cards, your savings and loan, your bank, any pawn shop or small loan company. If you need to borrow to start your business be sure you understand exactly how much interest
is being charged and over what time period payments are to be made. Shop around for the best rate you can find. Let's take a look now at the different categories of capital needed for your business. Financial experts
would label these.
1. Initial capital
2. Working capital
3. Reserve capital
4. Promotional capital
5. Growth capital
1. Initial capital is the amount you will spend to set up your store. This includes your deposits for rent and utilities, business licenses, store sign, attorney and
accountant's fees, printing, initial supplies, fixtures, equipment, and most important, your starting inventory.
2. Working capital is the money it will take to operate your store until profits from cash flow
begin to cover all expenses. A conservative approach here would be to hold at least two months' worth of rent, payroll, supply costs, etc., in your bank account
3. Reserve capital is your savings account or
emergency fund. No actual money is required here if you have lines of credit available. If you keep your credit cards paid off, you have immediate access to cash through them.
4. Promotional capital is money
assigned to advertising and promotion to let people know about your business. After you get the word out and have a successful Grand Opening, your advertising costs should be figured into your monthly budget. If you
have chosen a mall location, your advertising budget can be virtually nothing.
5. Growth capital is for future expansion. Nothing needs to be set for this at the beginning. Your first year of operation needs to
be on an extremely tight budget with nearly all profit being reinvested into building inventory.
Your primary concern in the beginning is to raise initial capital to get your store up and running. The two
examples on the following page will get you thinking about capital requirements, but these figures mean little until you tailor
Remodeling costs 500 - 1,000 500 - 3,000
Printing and supplies 200 - 500 200 - 500
Grand opening promotion 100 - 500 500 - 1,000
Insurance 1st quarter 200 - 800 500 - 800
Starting inventory $40.000 -$50.000 $30.000 -$40.000
Can't a business still be
started on the proverbial "shoe string"? Yes, it happens every day. But you would be better off in the long run to give your business every advantage from the beginning. Scrimp on supplies and fixtures, but
don't scrimp on inventory.
First impressions are everything. Your customers will have a vivid mental image of your store from their very first visit. You must impress them from day one and make them want to return
again and again.
Everyone loves new beginnings. The excitement and pride you feel for your new investment will carry over to the atmosphere of your store and influence the attitude of your customers.
Scrape up all the capital you can get your hands on and get your trading post off to the successful beginning it deserves.