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Small Business Budgeting - Facing the Challenges of Business Finance - How Much Start Up Money Do You Need?

By Edited Jun 9, 2015 0 8

Small Business Budgeting
You are excited for your new venture, but have you worked out your small business budgeting needs yet?

Many small business owners find this part boring and tedious, but it can make or break a business if the money gets away from you, which it can in the beginning when you are trying to set up. 

It is like building a house, you can very easily get swallowed up into the “while you are at it” syndrome which can easily take all your seed money.

You may be pumped and excited to get this business off the ground, but this part is just as important.  You need to create a small business budget to face the challenges of business finance.

You actually need two budgets.  The first one should be for your “start up” costs or seed money, and the second one will be on how you are planning to actually make money with this business once you are setup.

Of course the details will depend on the type of business you are starting.  If it requires a retail location or an industrial location then you are faced with rents, and utilities and much higher start up costs, as many units will want first and last month’s rent.  Also the utility companies will want deposits over and above your actual usage, so you need to find out all of this before you sign and rent any building or unit.

Finance for small business start ups – Start by creating a list of everything you will need to get your business off the ground.

Take a day to do this, so that you are not stressing and having to make decisions on the fly.

Start with a pad of paper and put your business at the top of it.  Then start adding subtitles and leave room under each one so you can fill it in. Ask yourself questions and then answer them or find the answers to them (research). Example:

Rent – How much room will you need? (you will answer with square footage for example)  How much do you feel your business can afford? Will a smaller location work for now?  Do you need delivery access?  If so, will you need a loading dock or is street level OK?

Just sit back, relax,  and vision your business in operation.  You can’t predict everything but the more you think about it ahead of time the better.

Supplies – Do you know good suppliers in the area?  Are their prices competitive, do they deliver? Or will you need a van or truck to pick them up? Do they offer an account to make it easier to pay later? Or will you have to pay up front from your seed money?

Office – Do I need an office? Do I need internet access?  Can I get it at the location I am considering? Will I need a new computer, fax, copier, file cabinets or c

how much start up money for small business
an I drag the ones from home for now?

Security – Will I need a security company to wire up the place? (that requires money up front) Will I set up my own security camera system instead?  Am I worried about theft in that area? Do I need to put bars on the windows?

Insurance – Will customers be coming to this location? If so will I need liability insurance? Will I have employees?  What type of insurances will I need?  Many insurance companies will want up front money for a new business, so you may need to consider the premium in your start up costs.  We had to get “contents” insurance for our equipment and supplies, so we needed to come up with a value.

Just keep creating this list of questions, then slowly start to consider them and answer them.  As you do this, you can start to create a running total of how much money you are going to need to set up this small business. 

How much start up money for small business is needed? – Once you have answered as many questions as possible about setting up your business, right down to the business cards and office desk, then you can work out how much money you will need to get started. 

Build in at least another 10% for unforeseen purchases.  The challenges of small business financing, is really knowing up front how much money you will need to get started.  It is not just a matter of hanging out your shingle and getting to work.  Even the sign on your building will cost you money, don’t forget to budget in that. 

So, in the beginning you may need to do a lot of research on the costs of setting up. 

If you are going to rent space, then not only take the rent into consideration but also the utility companies.

Our Own Small Business - When we finally decided to take our own family business to the next step, and out of the family garage, we had to be very careful about added expenses that we were not familiar with until we did some research.

Challenges of Business Fi

We worked out the type of space we would need, which saves time and narrowed down the search.  Then after talking to the potential landlord about what his responsibilities would be and what ours would be, I then phoned the utility companies to find out that the gas company wanted an additional $1000.00 dollars that they would hold as a deposit for FIVE YEARS.  Then the electric company wanted $750.00 deposit for the same amount of time, and the phone company wanted $275.00 on deposit as well.  They didn’t care that we were good with our personal bills and utilities at home, this was now business and was a very different kettle of fish!

So, before we even moved in we had to put out first and last month’s rent and then over 2000.00 dollars just in utilities deposits! 

We then had to allow the money to make the inside of this space the way we wanted it for our business, with paint, and furniture and equipment.

The sign to replace the previous tenants sign costs 1400.00 dollars.  Then you have to consider change of address for your business, logo design, listings and advertising to let everyone know where you are.

Once you have done your research and created and answered all the questions, you will have a handle on how much start up money you will need for your small business, you can now make clearer decisions.  Even if your business is in your garage, there will still be start up costs.

You can take this list and your small business budget and head to the bank and try and secure a business loan, or you can finance it yourself through lines of credit, savings or even family.

When it comes to family investing, many people will shy away, but if you lay it all out in black and white on paper and show them what you are trying to do, how much interest you will pay them and what type of monthly payment they can expect, and you make sure and make that payment, then it is more official.

If you ask your family for seed money, and then promise them when the business makes more money you will pay them, and then they see you running around in a new car but no payment to them, there will be resentment.

If you set it up with monthly payments, then as long as they get their payments they are not going to be watching your business and it’s every move.  But don’t take it personal if they say no, not everyone is going to be as excited about your business as you are!

Another good option for the challenges of business finance is the good old ZERO percent credit card offers or low interest offers that come in the mail.

If you plan it carefully, and don’t use this credit card for any other purchase, you can get a lump sum up front for very little cost.  But be careful, there is usually an end date to this offer, and then the interest rates jump.  They are hoping you won’t notice!  So if you go this route, mark the end date on the calendar, and now the clock is ticking to make money so that you can make payments towards this balance before the offer ends, so get going!

Challenges of Business Finance(61658)

Meetings - Make sure you have meetings with your business partners regularly so that everyone is on the same page.  We have a family business, and we make sure and meet and discuss all new ideas and or purchases that we feel the business needs. 

Every Friday, we discuss the weeks work, and what we are going to do next week and what we will need or what we can do better.  If someone finds a better supplier then we all consider it, rather than letting each person go wild with the company credit card!

Many suppliers will set up small accounts where you won’t have to pay for a month.  Make sure you pay them on time, and you will get better deals on supplies.  All of this saves you money in the long run.

Small business budgeting can be as simple as a list in the beginning.  You will be amazed at just how much you can get answered with that simple list of questions that you then break down.  It will give you an idea of how much seed money you will need and if you think your business idea is ready for that big leap of faith.

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Comments

Sep 9, 2011 6:35pm
Jerky
Great tips here, probably covered just as much as a $1k business course in this article - very nice!

I think what people sometimes overlook is that sometimes taking out a smaller loan upfront actually does more harm than good. It takes a lot of money to build a presence and get the dinero rolling in, and if you cut corners there, you're sunk. Funny as it sounds, it makes more sense to OVER ESTIMATE up front rather than under.
Sep 24, 2011 5:21pm
Sookie
Thanks! I agree that it can take a lot of money to build a presence and over estimating is a good idea.
Sep 23, 2011 1:55pm
Irene
Really good article, and sound advice on how to start a business.

I've seen many business plans that go to great lengths about marketing, audiences, what they are selling or how, but they don't even note down startup costs (as they are a "once off"), as if they were nothing. Even a small home based business has startup costs...

Not to mention the safety net for when clients are just slow to pay or something breaks at the worst possible moment.
Sep 24, 2011 5:23pm
Sookie
Thanks Irene! The safety net is really important as some customers, especially some of the larger companies tend to be slow to pay and you need to keep your business running.
Sep 23, 2011 10:36pm
AuroraWindsor
Nice job on this article. Your personal experience added a significant amount of value to your article. I did not know that your deposits could be held for five years.
Sep 24, 2011 5:25pm
Sookie
Thanks Aurora Windsor - I didn't know about these deposits until I started researching and finding answers to my list of questions! It is a significant amount of money that has to be taken into account especially since you won't see it again for 5 years! (in our case). Research is so important for a small business setup!
Oct 18, 2011 9:43pm
BohoGypsyArtist
Excellent advice. I'm planning to make the plunge myself and try my hand at starting up a small business. Your article is very helpful and has given me some good ideas on how to plan out my initial steps. Thank you.
Oct 23, 2011 11:34am
Sookie
It can get really busy quickly when you first start up a business, so doing some homework and planning ahead of time can help you keep on track and not get too many surprise expenses. Good luck with your business!
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