How Much Money Do You Need To Start Your Business?
One of the most important keys to securing a business loan is the amount that you ask for
. Ask for too much and your loan request will be declined. Ask for too little and you might have to go back for more or see your business suffer.
Going back to your lender for more money because you did not get enough in the beginning can be a red flag. And, if the bank or lender does not provide more capital, your business could close; leaving you with the original loan and no means to repay it.
So, how much money does your business really need to get off the ground and grow?
All businesses are different and thus all have different capital requirements. There are businesses that are capital intensive (meaning needing a lot of equipment) like manufacturers or dry cleaners or retail businesses that rely on inventory. Some businesses are people intensive like accounting firms or collection agencies. Thus, they have different capital needs.
However, all businesses can follow a few simple rules when it comes to their capital needs.
1) Know What Being In Business Means:
Being in business is about your customers and not about you. Thus, everything you do should be about satisfying customers. You take care of your customers and your customers will take care of your business (at least from revenue perspective).
Customers are the ones that provide revenue. If you can get that revenue from them and get more then it costs to get it that is business. Thus, to grow and succeed in business you have to satisfy those customers.
What all this means is that what you buy for your business, the costs you have and the expenses you incur should be about the customer and about the customer only. Thus, none of your expenses while in the start up phase or as your business becomes established should be about you or what you want but should only be about servicing your customers.
Too many start-ups or new businesses tend to buy or want to purchase items for their business that do nothing to bring in any revenue but are more for the ego of the business owner. Dont let it happen to your business.
2) Start Small:
While this may be intuitive, many business owners get carried away especially when planning their business.
But, starting small is not just about the cost and difficultly of having to raise a lot of capital. It is better for a new start-up business to remain flexible in the beginning until it actually finds out who the business is and what it will offer over the long-term.
Image that you start your business thinking that the path it is on is the best path and thus purchases a lot of equipment and property to facilitate that path only to find out, after a few months in business, that your customers are demanding your business go down a different path.
You can continue on your current path and hope that your customers will come around or you can change to satisfy your customers.
If you have already sunk a lot of cost into your current path, you really dont have the flexibility to switch your business quickly if you want to change directions which could be a fatal blow to your new company.
Keeping your business and its expenses small in the beginning allows your company the ability to adapt and change as it desires until it truly finds the path it needs to be on to become a long-term success.
3) How Much Can You Raise?
Most lenders or investors look to your cash flow or potential cash flow when deciding to approve or invest in your business. Therefore, if your business either has or projects low cash flow know that your ability to raise outside capital may be hindered. But, this does not mean that you have to quit your business or shelf your business dreams. It just might mean that you have to start on a smaller scale and work your business up to another level.
So, while you may want or think you need a $250,000 business loan, if your cash flow or projections only justify a $100,000 loan then re-work your business or manage it for a $100,000 loan only which means cutting some of the expenses that you want and dont really need.
Do know that if you are projecting revenue and you dont think that your cash flow projections are high enough, dont just inflate your numbers for the sake of your projections as all lenders and investors will look right through them.
Estimating the start-up costs or capital needs of a new business is very hard for an entrepreneur and even harder for someone not directly involved in the planning.
Do know that in the beginning, you, as the business owner, should only be thinking about solidifying the core of business the core things that will generate as much revenue as possible. The reason is that it is this revenue that will allow your company to grow and succeed.
There will be time later, after you are successful, where you can plunder your company by purchasing those things that are not so much related to growing your business or by taking out money for your own wants and needs. But, until that time comes, all expenses should be focused on growing the business.
By keeping your expenses down (both start-up costs and ongoing expenses) until your company reaches profitability, the less in outside capital you will need.
So, to answer the question of how much money your start-up business needs look to only the expenses that your business must have to become successful.
by: Business Money Today
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