A Plan For Financing Your Small Business With Minimal Debt
photo credit: MoonSoleil
When you’re starting a new business, taking on a new debt can be counterproductive. Business start up funding can be confusing. The whole point of launching your own business is to eventually become financially independent, and starting out with a mountain of debt seems to take two steps in the opposite direction.
Before you think about registering your business name and ordering stationary, you need to calculate exactly how much your new enterprise is going to cost to set up and run. This can be a tedious process, but it is wise to account for any real and potential expenses that you’re likely to come across.
Your business expenses should be loosely grouped into three categories: needs, wants and contingencies.
Needs covers anything that you literally could not go without, in order to launch your business. For example, let’s assume that your new business will be a pet-grooming salon. Needs would include:
• Registration of the business name
• Permits from relevant council/authorities to operate
• Business insurance
• A physical space to run the business from, including fit-out of taps, tubs, etc (including bond and first 3 months rent)
• Signage
• Cages/spaces to house the pets
• Pet shampoo and grooming products
• Business cards
• Promotional flyers
• Blog/basic template website
• Wages (for first 3 months) – even if you’re the sole staff member, you need to remember to pay yourself!
Wants includes anything that you would ideally like to launch with, but that you could wait three, six, 12 or 24 months to implement, such as:
• Professional logo design
• Custom-designed website
• Letterheads and stationary
• Larger run of promotional flyers
• Advertising budget – local newspaper, etc
• Product range to sell in-store
• Magnets printed with your contact details
Contingencies acts as your back up plan, in case something derails your schedule or an unexpected expense pops up, like a burst water pipe. You need to set aside money to cover contingencies, including:
• Insurance excess – in case you need to cash in on your policy
• Staff hiring expenses
• A 10% buffer on all expenses: tradesmen’s quotes can go up and product prices can increase, so you need to be prepared
Now that you know roughly how much the business is going to cost you to set up and run for the first few months, you can calculate how much capital you need to get your idea off the ground.
In this example, let’s assume the ‘Needs’ will cost $15,000, the ‘Wants’ $6,000, and the ‘Contingencies’ $4,000. The total is $25,000, so ideally, you’d want to launch with that amount in the bank. The minimum you need to get started, however (‘Needs’ + ‘Contingencies’) is $19,000, so that is the amount of capital you need to raise to get your business up and running.
Personal savings
If you plan to launch your business in 12 months, you can put that time to good use and implement a personal budget. Your budget doesn’t need to severely impact your lifestyle – in fact, if it does, you’ll be less likely to stick to it and your business start up funding plan. You simply need to make smart choices about what you spend your money on.
Saving a few dollars here or there might not sound like it would make much difference, but making several small changes can help to boost your bank balance significantly. The key to implementing your budget is to really think about how you spend every dollar. When you’re about to hand over $7 for a latte and a muffin, consider: What else could I buy with $7? Would I prefer a book, or a couple of magazines? Or would I prefer to keep the money in my pocket, and have a coffee and a biscuit when I get to work?
You can make your morning coffee instead of buying it; invite friends over for a dinner party with each friend bringing a plate, instead of eating out; cut down to half a packet of cigarettes a week instead of a whole. If you spend $100 a week on lunches, coffees and takeaways, even just cutting this in half to $50 will see an extra $2,600 in your bank account at the end of the year.
If you can trim your expenses across food, entertainment and clothing by $125 week, you’ll have $6,500 to put towards launching your new business after 12 months. Not a bad start!
Start Selling
As the saying goes, one man’s trash is another man’s treasure – and nowhere is that more evident than on eBay!
Do you think no one will be interested in your old Michael Jackson cassette tape? Think again: eBay is teaming with literally millions of people who are prepared for fork over their cash for your unwanted goods.
A great place to start is your DVD and CD collection. Old and new DVDs and CDs usually sell for between $5-$15 apiece, because people often seek out back catalogue bargains and new releases online.
When you cull your collection, be brutal, but don’t sell anything you might regret later – if you can honestly see yourself watching ‘Mean Girls’ again, then by all means, hold onto it! But if you’re keeping it because you bought it on sale, or you received it as a gift, or you think you might want to watch it again ‘one day’, transfer it to your outgoing pile.
Next, go through your closet. Your unwanted clothing, handbags and shoes can be a goldmine online, particularly designer labels and vintage items. These can be a little trickier to sell, as buyers often want to know exact measurements and color references. However, unique and sought-after pieces often sell for upwards of $20-$50 a piece, and designer clothing and accessories will always find a buyer on eBay – and they often sell for as much as you originally paid!
Between your entertainment cabinet and your wardrobe, you’ll be able to rustle up at least a few garbage bags worth of unwanted goods. A few weekends spent photographing and listing your items should net you another $500-$3,000 to add to your business start-up fund, bringing your total to around $8,000
Low Interest Borrowing
You now have around half of the start up capital you need, so for the remaining funds, investigate your options with small business start up loans. You can find these resources on my website.
Between your super savings plan, eBay profits and low-interest borrowing with a start up business loan, you’ll be well on your way to launching your own business – without having to take on a monster debt to reach your goal.
Steven Schlagel is a CPA with over 30 years experience providing businesses and their owners consulting and financial skills. Steven understands business, wealth creation, and building successful and valuable enterprises. Visit http://www.expert-help-starting-a-business.com/business-start-up-funding.html to learn more about starting your small business successfully.
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