If you are seriously looking to start your own business, you will need money-a lot of it. Your most important expense categories are Market Research, Overhead, Equipment, and Inventory, in that order.
Market research is the process of learning about your target group. You may well know plenty about your target group, as in the case of a licensed cosmetologist opening a cosmeceutical boutique. We all have (perceptions and biases, and market research will keep yours from interfering with your business’ success, and your cash flow.
“Overhead” is the cost of doing business. Examples of overhead are renting/buying your workspace, storage area, monthly expenses such as electricity and phone service, salaries of employees, any permits or inspection fees, uniforms and marketing expenses. Some business plans include equipment costs in their overhead expenses.
Equipment is your tools of the trade; what you will use to produce your service or product. Ovens and mixers, laser machines, candle and soap molds and supplies, and printing and engraving machines are examples. If you will be operating a retail storefront, display cases and racks would be your operating equipment.
Inventory is your stock on hand, your supply of whatever you’re selling, or your ingredients to create your product or service, such as tattoo removal supplies.
You will need to decide how much cash you need and how to obtain that cash. This is critical, because as many as 80% of new businesses fail within the first two years, and 50% within 5 years, because of insufficient cash.
Financing for your customers? This is often a great way to introduce more cash into your business. There are many people who would be your customers if they had the money to purchase from you. This is where consumer financing comes into play.
In addition to the above expenses, there are other aspects that also need to be included in your business plan. Determine how long it will take your business to become profitable, then double it . If your predictions turn out to be accurate, then you can save the extra for rainy days. There will be unexpected expenses, so invest the excess in a Money Market account where it may grow until you need it.
It may be tempting to buy equipment at cut-rate prices, until it wears out after a year. Go ahead and borrow enough to purchase equipment, overhead, and supplies that will help you to grow and succeed.
Don’t expand your staff until it’s critical.
Once you know how much start-up cash you will need, chances are you will have to borrow it. If you have access to personal start-up money, be prepared to lose it-at least until your business become profitable.
There are the traditional options of borrowing from a bank, borrowing from family, and recruiting investors. The United States Small Business Administration has information on these methods, and the newer, less traditional methods of financing such as microloans, PayPal Working Capital, and cryptocurrency.
Microloans are typically for less than $35,000 and are short-term. In 2009, there were over 1,100 microfinance institutions serving more than 74 million borrowers.
PayPal Working Capital: PayPal will provide loans between $5,000 and $60,000. The approval process for PayPal Working Capital is based on your business plan and your PayPal account history, not your credit rating. PayPal Working Capital currently has more than 152 active accounts, and repayment is based on a fixed percentage of total monthly sales. This is especially beneficial during start-up or slow periods.
Cryptocurrency refers to Bitcoin, Litecoin, and all other digital currency. Digital Currencies have no transfer fees and a much faster transfer rate than cash. Since Bitcoins are steadily gaining acceptance, consider purchasing part of your business startup with Bitcoins or another cryptocurrency, which won’t be subject to the same official regulations as cash.