How Much Cash Do I Need To Start My Business?

The primary reason why many small businesses fail is they underestimate the amount of capital needed during the startup phase of the business. Starting your own business is a great way to take charge of your future, but it is important that you be prepared if you want to transition from employee to entrepreneur.  The first step is to build experience in your chosen field so that you are prepared for the unique challenges associated with every business. Your next and most important step is to accumulate the capital necessary to start the business. If you fail to correctly budget the capital needed, you are likely to run out of money before your business gets off the ground.

Capital is used to fund your initial startup costs and the ongoing monthly operating costs of the business. This capital can come from loans, from outside investors or from your personal equity.  Because your business will not be running at full capacity during the initial startup phase, you should have enough capital to cover the costs outlined below for at least the first six months of your business.

1. Startup Costs will include:

  • City or county business license fees
  • Incorporation fees paid to the state and associated legal fees
  • Security deposit and the first month’s rent for a commercial lease
  • Initial inventory if you sell a product
  • Office furniture and office supplies
  • Computers, computer software, printers, copier, security system and telephone system
  • Exterior signage
  • Business cards and stationary
  • Decorations for your space

2. Monthly Operating Costs will include:

  • Employee salaries and commissions
  • Monthly rent
  • Monthly draw for the owners
  • Payroll and other accounting fees
  • Income and sales taxes
  • Telephone and internet service charges
  • Utility charges for electricity, gas and water
  • Inventory replacement if you sell a product
  • Insurance
  • Office supplies
  • Advertising and marketing charges
  • Website hosting and website maintenance
  • The monthly cost to service your loan if you took out a loan to start your business

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