Oftentimes, passion and commitment to a business idea is not enough to successfully start a business. You need to have the resources (or access to it) to see your vision transform into a thriving business. Alas, a lot of home business entrepreneurs don’t have the money to start their businesses. They find it hard to raise the capital they need to jumpstart their businesses and realize their entrepreneurial dreams.
I’ve talked to some would-be entrepreneurs whose planned businesses are too grandiose for their pockets. For example, there’s this retiree who wants to start a sit down restaurant when his budget cannot even afford a kiosk in the mall. Or a woman who wants to start a clothing line but has no capital whatsoever.
As I said, it’s great to have a strong passion for a business idea. But it is important to match the dream with how much money you actually have or can raise for the business.
When starting a business, therefore, you need to:
- know your startup costs
- estimate the working capital you need
- calculate the money you need to open and run the business
It is critical that you know how much money exactly do you need to have your business up and running. Make a list of all items you will need to start this business. Research as much as you can — to the smallest cost expense if possible — all the expense items you will need. Make sure to add some extra funds for buffer and to help you meet those hidden costs that will always be there. It is better to overestimate than underestimate the startup capital that you need.
Startup costs could include
- rental or lease fees, if applicable
- beginning inventory
- capital expenditures such as vehicle, furniture and equipment
- public utilities
- remodeling or building work
- office supplies
- licenses and permits
- advertising and marketing
- other startup expenses
For example, if you are opening a retail store, you can check out the common expense items by reading the article “Cost of Opening a Retail Store”. Palo Alto has a startup costs calculator that you can use to estimate the startup costs you need.
For your working capital, you will need to know the monthly cash requirements of your business particularly employees salaries, among others.
Recommended Books on Startup Capital: