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How much money do I need to start a business?

March 28, 2016

Every new business requires some form of financial investment to get started, and figuring out the amount required before you get too far into the process is essential. You need to determine how much you’ll need to get off the ground and what it will cost to maintain the business on an ongoing basis.

Ideally, you should be able to forecast your expenses and anticipated cash flow for the first month, three months, six months and year of business. This information will reduce financial uncertainty and help you make smart decisions. The following outline provides some possible costs associated with starting a business. Use these to start an estimated budget for your business:

Startup costs
Startup costs can be as little as $100 or hundreds of thousands of dollars. Generally, startup costs include licenses and permits, legal fees, insurance, branding, prototyping, testing, market research, trademarking, grand opening events, launch marketing and any other costs that are required to start the business.

Capital expenditures
In addition to startup costs, there are usually a number of one-time expenses that you will need to fund when first starting your business. This can be highly variable, depending on the type of business you are starting. Capital expenditures may include initial computer or equipment costs, furniture, remodeling or improvements, office space and startup inventory.

Operating expenses
Operating expenses are costs that recur each month and are required to keep your business running. Examples include rent, utilities, advertising, production, shipping and handling, supplies, telephone and Internet services, website fees, travel costs, employee salaries (and your own!) and professional membership fees. If your business requires you to do business with professional services providers, such as an attorneys, accountants, bookkeepers and IT support, be sure to factor in those ongoing costs.

How much is needed right now?
Ideally, you will have at least six months of funding (12 months is even better) to cover your expenses as you get started, since the business ramp-up stage typically takes some time. There are ways you can minimize the risk when just starting out, though. You can start your business on a part-time basis while you maintain regular income from an existing full-time job. Or, you can team up with a partner to split the costs and spread out the risk. You can even try crowdfunding on sites like Kickstarter to get the financial support you need without taking out a loan or using credit.

Whichever path you take, make sure you have a good understanding of the financial requirements before committing to the business. The most important thing is to do your research so you don't end up losing time and money by being unprepared.

Want to learn more? Read more tips from Alyssa Gregory.

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