A while back we posted about writing your Business Plan, and when you are trying to create your business plan, you will want to outline how much money you need. But how do you decide how much money you need?
An old stand-by was that you want to have enough for your business to last 6-months. However, that may not be enough, and it may depend on the business you are starting. If you are just starting to work on your plan, it may be helpful to get a Business Mentor, someone you're friendly with who runs a similar business, and who can give you some guidance.
If you cannot find a Business Mentor, then you will want to start by calculating your monthly cost. It may seem overwhelming at first to consider everything to figure this cost.
Due to the way rent is handled for our homes, there can be some confusion when it comes to renting a location for a business. While some places may have a straight forward rental fees, like your home may, many may use other options, like Net, Double Net or Triple Net (N, NN, & NNN). These usually favor the landlord and have the renter pay some property taxes, maintenance, etc. A percentage lease, sets your rent at a base price, plus a percentage of your monthly sales. So, what kind of lease is there going to be at the location for your business?
What is the cost going to be for your monthly utilities? What are they during the summer, with the air conditioning running? In the winter when the heat is running? We all would like to determine exactly when our business will start, but with the common need for licenses, funding, and so forth that can be difficult. So you need to determine what your cost are going to be in each month.
Many businesses require at least a business license, and other businesses require more than just that. As well, in some cases a business might have a license that requires regular renewal. You need to know these fees.
This includes not just the products you are going to sell, but also anything else you are going to need. If you are opening a restaurant you need equipment for preparing and storing food, chairs, tables, etc. For an online business you need a website, a shopping cart system, possibly an account with a shipping company.
You'll have to decide if you need employees and how many of them you need. How much, will you pay them? What are the taxes you need to handle? And the benefits you will provide?
Now that you have the monthly amounts figured out you'll want to decide how many months you would want to have setup for your new business. How long does the average business in your field last? If it is six-months, how many of them fail in that time compared to how many make it to nine-months or twelve? How much longer do they last if they make it to those points?
If 50% of the businesses in your field fail by six-months, but ones that make it twelve-months have only a 5% chance, than you'll want to start your business with the money to be open for twelve-months to start. This will give your business the best chance to last.
Plan well, the better you plan out your business before you get it started, the higher probability that your business will last.