Critical elements in the plans for any new business involve determinations and decisions surrounding the funds needed to start and sustain the business for several months. Too many new business owners underestimate the amount of time required to break even.
Acquisition costs: If the business is an acquisition, the largest of the startup costs is likely to be the financing of the purchase.
Property purchase or lease: Funds will be required to acquire the property or for lease prepayments, site renovation and utility deposits, to name a few.
Site renovation: Painting, shelving units and display cases, lighting, equipment and space may be needed.
Inventory: If you are a retail or a manufacturing business, some inventory will be necessary. Think about unused inventory with little value.
Equipment: List the equipment you will need. The Internet will help you search for suppliers. When contacting potential suppliers, ask for their suggestions.
Working capital: Until sales commence, you will need funds to cover the unexpected. Dont forget youll need insurance. Lenders will not expect you to use working capital for your salary.
MINIMIZING THE AMOUNT NEEDED
Once the funding categories are identified and youve made an initial estimate of the funds needed, consider whether the funding of each category can be minimized.
Home office: Instead of buying or leasing space, can you start at home, maybe using a spare bedroom, the basement or the garage?
Sharing space: Perhaps you can identify a business with extra space that you could share. In the food business, renting off-hour space in a certified kitchen can substantially reduce costs.
Lease vs. buy: Whether its a building or equipment, leasing can significantly reduce the amount of startup funds you need. Try to include a clause that allows the payments to be applicable toward the purchase.
Seller financing: If you are buying a business, ask if the owner will finance the purchase. This has an added benefit: The owner will want you to be successful so you can pay off the loan.
Used equipment: This can dramatically reduce funds needed. Some dealers may also provide a warranty.
Consignment or other vendor inventory: Ask about vendor financing, extended terms and consignment.
Timing: When do you need the money? Some expenditures may be spread out over the first few months.
SOURCES OF FUNDS
Personal finances, family and friends: A recent Gallup study reported that personal finances such as savings, home equity loans and loans from family and friends funded 90 percent of startup businesses.
Partner/investor: Maybe you need to consider an investor, who might want to be a partner. Make sure you know whether the partner will work in the business or watch you work.
Bank/credit union: You will need some skin in the game, probably 20 percent to 30 percent. Youll also need collateral and good credit.
Suppliers: A supplier may want to penetrate a new market, and you may be the means to do so.
Customers: If you can provide a unique service or product, a customer may consider providing some startup funding.
Former business owner: This person may choose to help you get started. Ask!
C. Norman Beckert, Idaho district director for SCORE, the Service Corps of Retired Executives. email@example.com