How Much Money Do I Need to Start My Business? One of the most difficult things to do when deciding how to start a business is determining how much money you will need. Careful consideration of the start-up cost is just the beginning. You also need to accurately calculate the operating capital required to cash flow the business until the business is generating enough money to sustain itself and your income needs. One of the initial challenges is that there are simply too many variables and possibilities regarding exactly what, when, where, and how you will develop your business concept. First, let’s take a look at some of the more common start-up costs faced by most businesses before we move on to the challenge of projecting earnings and profits after you open your doors to customers. EVALUATING START-UP COSTS When starting a new business, moving to a new location, opening a new branch or expanding your business, there will be start-up or one-time expenses. Know what these expenses will be for your business by filling in the amounts required for each of the items listed below. Item Dollar Cost Real Estate, furniture, fixtures, machinery, equipment: a) Purchase price - if paid in full with cash $ ______________ b) Cash down payment - if purchased on loan or contract $ ______________ c) Transportation & installation costs $ ______________ Starting Inventory $ ______________ Decor, Tenant Improvements, & Remodeling Costs $ ______________ Deposits Required: a) Utilities $ ______________ b) Lease or Rent $ ______________ c) Other (identify) $ ______________ Fees Required: a) Legal, accounting, others $ ______________ b) Licenses, permits, etc. $ ______________ c) Other (identify) $ ______________ Initial Advertising & Marketing Costs (ie., flyers, sales letters and $ ______________ calls, signs, brochures, etc.) Lease/Rent/Utilities/Training required until business is open $ ______________ Salaries and owners draw (until business begins) $ ______________ Other miscellaneous expenses: Merchant Association fees, equipment rental, office supplies, $ ______________ cleaning service, other supplies, signs, etc. Payments on other fixed obligations $ ______________ Total Start-Up Costs $ _______________ BESIDES START-UP COSTS WHAT OTHER FUNDS WILL I NEED? Rarely does a business get the doors open and begin making a profit right out of the “gate”. Most businesses take 3-12 months or even longer before consistently producing sufficient revenues to break-even let alone enough to allow the owner to take a paycheck. Since a business can not operate “in-the-red” for more than a few weeks if it has greater expenses than revenues new money must be invested into the business until achieving breakeven status. Where will the money you need to cash flow the business until it reaches profitability come from and more importantly how much will that be? Unless money is not an issue for you let’s come back to the “where” question in a moment. The key to answering the second question is dependent on your business’s future revenues. If you are like most of the client’s I have helped through this process you are probably wondering how can I possibly know exactly how much money my business will make in the future!? The honest answer is you won’t. But with careful study and analysis and the use of a good “Profit and Loss” spreadsheet you will be able to create a fairly accurate . Below is a listing of the more common “start-up” procedures. There may be other requirements or areas necessary for the specific type of business you are considering or expanding. The following are not necessarily in prioritized sequence or order of importance. Contact the nearest SBDC office to meet with a consultant to discuss exactly what the requirements are for your business in your area. START-UP "TO DO" LIST _____ 1. Know exactly what type of business you want to start and learn all you can about it. _____ 2. Appraise your business strengths and weaknesses. Be strict, honest, and objective. _____ 3. Conduct thorough research of potential customers, your trade or industry, your competition, your licensing and tax requirements, location, and name. _____ 4. Determine type of business organization (ie. Proprietorship, Partnership, or Corporation) _____ 5. Evaluate possible site locations. Check physical conditions, suitability, traffic flow, parking, accessibility, utility requirements, and cost. _____ 6. Prepare a comprehensive business plan - include a budget and action timetable. _____ 7. Decide on your business hours. _____ 8. Determine who will be your suppliers and service providers. _____ 9. Obtain needed facilities, equipment, furnishings, signage, supplies, and inventory. ____ 10. Establish job descriptions, policies, and training program. Recruit personnel. ____ 11. Print business cards, stationery, invoice or statement forms. ____ 12. Register name of business (your assumed name) and/or file articles of incorporation with the Secretary of State. Publish notice in newspaper. ____ 13. Secure any necessary permits, licenses, or zoning variations. Check with both local and state licensing agencies. ____ 14. Register your business with the state and obtain a Sales & Use Tax Permit (if applicable). ____ 15. Register for Federal tax number (Form SS-4) and obtain employee tax and withholding information from the IRS. ____ 16. Establish bank account (separate from personal account). Shop for the bank and services that best suit your needs. ____ 17. If you intend to hire employees in your business, phone your local Employment Development Department office or local Workforce Investment Board for advice. ____ 18. Contact a worker’s compensation insurance provider if your state requires coverage. ____ 19. Issue news releases. Publicize your new venture. ____ 20. Phone the IRS for a free "Small Business Tax Kit" at 1-800-829-3676. For information about free Tax Education Workshops, call 1-800-829-1040 or check out the IRS website for this information.