How Much Money Do You Really Need to Start a Business?
The question is a fundamental one and the answer to it must be carefully arrived at. As a business leader, you have your own set of general needs when it comes to putting your ideas into practice. There is, however, a certain way you ought to think about the amount of cash you need to get your venture up and running.
Every entrepreneur is encouraged, nay compelled, to formulate a business plan. It is a document that includes a description and analysis of product, resources, market, strategy, and finances. Drawing one up is a rather tedious affair, but it is a great way to get you to develop and clarify your ideas.
Your business plan is the reference point of your sales pitch to potential investors. Because you are asking for money, it is especially important that you are confident in handling the financials. However, showing prospective investors that you have a firm grasp of the figures will only get you so far. It will only prove you competent enough to know the significance of capital, revenue, and profit in the running of a business. Regardless of how well you’ve presented your case, you are not likely to get the start-up capital you asked for. You are likely instead to be told that you must figure out a way to do with less. And in most cases, it is the right call.
Establishing a business is not as expensive as it seems. If you have difficulty seeing this, it owes to your relative inexperience in running a small business. However, once you start casting a more critical eye at your business plan you’ll start finding things you can really do without or for which cheaper alternatives can be found.
An article in Forbes magazine offers some great advice on this subject. It discusses the need to treat funding in a disciplined and methodical way. If you’ve secured an initial round of capital, get on with meeting your stated revenue and sales targets for coming year. Your aim, however, should not be to spend all that has been allotted to you but to spend money only on what you need.
Timing is also important. The earlier you accept funding the costlier it can be. For example, if you need capital to get through the planning stages of your business venture, then you may end up surrendering a greater portion of equity and executive control than you originally wanted to. Taking a smaller amount of money when you are closer to actually launching your business can put you in a more advantageous position.
Remember, your business plan is just that: a plan. It’s a way of organizing your ideas; it’s not an operations manual. It’s important to test your assumptions and to get yourself down to the bare necessities. You can probably do with a lot less capital than you think in starting up your business.
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About Christopher Reid Chris was born in Washington, D.C. and lives in Britain. He works as a blogger, essayist, and novelist. His first book, Tea with Maureen, has just been published.