How to Calculate Your Business Capital Needs
Brittney Castro is CFP® at Perennial Financial Services (http://perennialfinancialservices.com/). In this video she discusses how to calculate your business capital needs.
- Calculate your initial expenses
- Add a reserve of 10%-20%
- Anticipate 6-12 months overhead
- Research financing options based off calculated total
As a certified financial planner, I often have a lot of individuals ask me how much do they need in order to start their business. And I always recommend just start by calculating what you need for those initial expenses to open up the doors basically. That could include your website design, any legal fees, marketing fees, maybe products or supplies, possibly equipment, everything that you need just to start that business.
Once, you have that number calculated, I would also just add another 10 to 20% for unexpected cost that come up, almost like a contingency plan. We all know that we can plan very appropriately, but there are always those unexpected expenses that arise. Once you have that number calculated also look at 6 to 12 months worth of over head expenses.
And the reason you want to know that is because often time’s businesses aren't profitable right away. So if you have that money saved up you can definitely pay for your ongoing bills without worrying so much, that your business isn’t making a profit right away.
Once you know these numbers then you can just look at all your different financing options, you know, where you look for personal loans, small business loans, may be private investors. There are a lot of options out there and there is pros and cons to every options.
So again, take the time to plan strategically for your type of business, how much does it cost to start, how much it costs to run every month. And then you could look at all the different financing options to start your business today.