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Start business steps
Start business steps 5 & 6: This page addresses steps five and six of the ten steps needed to start your own business: 5. How much money will I need to get started?
Step 5 How much money is needed to begin your business? There are two basic answers to this question depending on whether you’re a serial entrepreneur from Silicon Valley with a Stanford MBA starting a bio-tech business or an average person who is just starting your first business venture. The Stanford MBA would create a business plan assuming huge revenue (certainly more $100 million) and based on that financial model would go into the venture capital market looking for ‘seed’ money that the VC would like the return on investment from. The minimum seed money would be in the $5-10 million range. If you have the $5-10 million, that’s great. You can easily start business steps. But if you’re like most of us and you’re not in a position to attract major venture capital investment, you need to be more creative and more careful how much money you’ll need to start your business. We go back to the original question, “How much money will you need to start your business?” My experience tells me that the more creative you are the more you can limit your investment as you start business steps. Let’s look at my father as an example. He was working as a sales person for American Greeting, making very little. He had five children under the age of 15 and he decided he wanted to start a chain of grocery stores. He had NO money, yet within four years he had acquired four stores. How was he able to do that? First he found a distressed seller who HAD to sell their store. Secondly, he purchased the store on a land contract, including the entire inventory and proceeded to sell off the inventory at VERY cheap prices to raise cash. With cash in hand he went to the bank, who agreed to finance his first store and they continued to finance his subsequent purchases. So he was able to start a chain of grocery stores with NONE of his own money. As I discussed previously, my husband and I were able to purchase an existing newspaper with nothing down and on a payment plan that allowed us to operate the newspaper to pay the bills and required very little investment. That business ultimately became a monthly national magazine generating more than $2.5 million in revenue annually. So it is possible to create or purchase a business with VERY little investment. Certainly with the advent of the internet even more no-money businesses are possible! Start business steps with no money of your invested is the best possible way to limit your risk. There is an entire section of this website about money PLEASE CLICK HERE if you need more information. (LINK) Tip 6: CASH IS KING. Many people in the heat of the battle forget this but for most businesses managing your cash will determine success or failure.
Start business steps 6 How much money is needed to operate your business for three years to start business steps? This may not be a question that you’ve even considered, but it’s key to your business survival. Normally, a business doesn’t become profitable until three years after startup. Therefore in order to answer this question you’ll have to plan an overall cash strategy for how you’ll allocate your cash until the business becomes profitable enough to sustain itself. The first thing this question implies is that you know how much cash you’ll need to support your business. This is based on your business plan and financial model. (LINK to Financial model for details on this topic) Assuming you know how much cash you need, let’s consider some possible cash strategies that you could use to start business steps while your business is developing: 1. Work in former career for transition You may be thinking, “I don’t want to do any of these things.” During the formative years of your business you may not have any choice. Click here for a more detailed discussion of CASH STRATEGIES. You need to think about a cash strategy. This is essential for getting started and for you initial operating plan. Let’s look at another example. We’ll go back to DK Designs, the jewelry business. Deanne has launched her business, quit her day job, and all of her time is devoted to creating her first collection, DK Designs 2008. She pours all of her money into the collection. What if she doesn’t sell enough of her first collection to generate enough cash to create DK Designs 2009? She needs a cash strategy that will allow her to operate UNTIL she KNOWS that her collections will generate enough cash to cover the launch costs for the next collection. What’s her cash strategy? She’s selling some of her friends’ jewelry along with her own in her collection. Deanne believes that the 50% profit she’s making on that jewelry (with no cost of inventory) will produce enough cash to allow her to survive until HER jewelry produces enough cash so she no longer has to carry other people’s merchandise. That’s a three year cash strategy that will work. Believe me you’ll need a three year cash strategy too!
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