How Much Money Do I Need To Start A Business, Really?

Starting a business is increasingly becoming an incredibly attractive proposition if not the only choice for many Americans today. There are endless types of businesses you can start but if there is one thing we should have learnt from the recent economic crash it is that it pays to be well capitalized. So how much money do you really need to start your own business?

According to the Small Business Administration as many as 50% of all small businesses fail within the first year and 95% within the first five years. Obviously a large number of these failures and those of many of our financial institutions are due lack of capitalization and funding.

The good news is that is costs a lot less to start a business today than it ever has before. Many new entrepreneurs are opting for virtual business models which have extremely low overhead and are easily scaled to meet demand. However, those seeking to open brick and mortar businesses are also enjoying amazing deals and discounts on office space and essential items from vendors. However it isn’t just start up funding to cover an office, inventory and supplies or equipment you need to worry about. You will also want to have funds to make a splash at your launch, keep up your marketing until its effects really kick in and enough to take advantage of opportunities arise as well as discounts on bulk purchases so that you can really compete. The bottom line is that you don’t want to run out of funds just before you hit the big time and start turning a profit.

Unfortunately, many entrepreneurs drastically underestimate how long it is going to take them to really start turning a profit. Those who just invent or throw their product or service on the market and hope that people will come, could easily find they come in a lot slower than hoped. If this is your strategy you should be prepared to go at least a year if not longer before beginning to turn a real profit.

So when planning and calculating how much money you need to launch your venture make sure that you have accounted for this. Obviously this number will vary based on your individual business but should include operating expenses, marketing money and perhaps most important take into consideration your need for income during this period of time.

This doesn’t mean that you have to obtain venture capital or angel funding in order to have a large bank balance to get you through but all your bases should be covered. The longer you can go without borrowing or being forced to sacrifice your principals in order to take home a paycheck the better. This will allow you to stay true to your vision, do things right and build a better business that can last.

However, with all this said, the savviest entrepreneurs and small business owners today are dramatically reducing the amount of money needed to start their own enterprises and are sharply cutting down the amount of time it takes to turn a profit by building a customer base and following first and allowing their income to fuel their growth.