Much emphasis is placed on the importance of researching the feasibility of your proposed business and then planning for its operation. Of equal importance is whether outside financing is needed to get the business started or if financing can be acquired.
Too many entrepreneurs try to start and operate a business without enough money. Tragically, many small businesses fail each year because of insufficient funds. To avoid this dilemma analyze three questions:
- How much money do you have?
- How much money will you need to start your business?
- How much money will you need to stay in business?
A variety of funding sources exists to assist small businesses in the start-up phase and throughout their development and expansion. The following section examines the types of funding sources that are available to small business owners. For assistance in identifying the funding sources for which your business may be eligible or for additional information on any of the financing programs listed here, contact the Small Business Development Center
Preparing a projected monthly cash-flow worksheet in the initial planning stages of the business is a good way to determine the amount of capital needed to establish and maintain your business. The cash-flow statement allows you to incorporate anticipated start-up expenses (as well as the requested loan amount) into the first year’s financial forecast to show a clearer picture of the company’s projected financial position.
The cash-flow statement is also useful in determining whether outside financing will be needed to start the business, and how much will be required. In most cases, revenues generated by a business in its initial months of operation are not enough to meet its debt obligations. Thus, additional “working capital” is needed to keep the business operating until revenues reach the break-even point, or a level at which sales can sustain business.
It is a good idea to request enough financing to cover all anticipated start-up costs, plus enough working capital to meet all monthly operating expenses, including the loan payment, for the first three to six months. The number of months of working capital needed will depend on the type of business you are starting. Keep in mind that the higher the loan amount, the higher the monthly payment.
To get some idea on how much money you will need, you should prepare a list of the things you’ll need for your business. Use the chart below to begin getting some figures together for how much it will cost to start your business and how you will use the money.
