Guidelines For How Much You Need to Start a Business

You’ve got the idea for an entrepreneurial venture that you know can make a difference—in the marketplace and for your own life. But now you’re dealing with the cold reality of getting it off the ground and paying the bills in the process. You’re wondering the most bottom line question there is: how much money do you need to start a business?

The natural answer is “It depends,”—according to the U.S. Small Business Administration, a home-based microbusiness can be done for as little as $3,000 and home-based franchises are in that same ballpark. But if your business requires a separate brick-and-mortar location, those costs will be considerably higher. To say nothing of the variances in the expenses depending on what type of your business you’re in.

Just because one article can’t give you a one-size-fits-all figure to answer the bottom line question, it doesn’t mean there aren’t basic metrics that all business owners have in common. They include:

• Capital expenditures: These are the 1-time costs needed to get off the ground. It could be furniture and machinery. Necessary licenses and permits may apply here, as would any digital investment (i.e. building a website).

• Recurring expenses: Payroll is the big one here, as you decide what salary you have to pay yourself, along with any employees you’ll need to start with. This includes the costs of health insurance and other benefits. Recurring expenses will also include supplies, utility costs, rent and marketing costs.

Your capital and recurring expenses essentially add up to your first-year costs. From here you can do a break-even analysis that can be used to either draw in investors or at least know how much of your savings will be tapped.

Getting these expense estimates right is the real challenge and to that end, budding entrepreneurs are advised to network with other professionals in their chosen field, to better get a handle on realistic estimates right. It’s also advised that to be on the safe side, you should assume that you’ll actually need whatever 130 percent of your final tally is.

Keep in mind, that your projections shouldn’t only be about costs. You’re also going to have income flowing in. Part of your initial research and networking should be aimed at getting reasonable estimates on incoming cash flow. Even if you don’t plan to have investors on board right away, meeting realistic targets in your first year is a great way to get angel funding as you move forward and look to build on your initial success.

Finally, start small. Yes, it’s important to give your business the best possible chance to succeed. But err on the side of playing it safe. You’ll be able to learn as you go and make adjustments if you aren’t overleveraged right out of the chute.