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One of the reasons people don't start their own business, despite a desire to, is lack of capital or an uncertainty about being able to raise enough. Lack of enough capital is also a prime reason why many businesses fail. How much do you need? You don't have to be rich to start your own business. Surprisingly, more than 17% of all new businesses begin with less than $5,000 in cash. Lack of capital is often a cause of business failure, but not as often as lack of proper management.
Capital available at startup for companies now worth more than a million dollars:
- $5,000-$9,999 - 14%
- $10,000-$19,999 - 15.5%
- $20,000-$49,999 - 25%
- $50,000-$99,999 - 15%
- $100,000-$249,999 - 8%
- $250,000-$499,999 - 2%
- $500,000 and up - 1%
Many successful businesses, particularly in this modern service economy, are started without any capital at all!! There are people who literally lift themselves out of financial ruin by starting their own business.
The biggest problem with lack of capital is providing for your expenses long enough to become profitable. Many experts say you must figure on living off of your capital for at least three months, perhaps longer. When figuring how much you will need, figure these monthly costs:
- Living costs
- Employee wages
- Rent
- Advertising
- Supplies
- Utilities
- Insurance
- Taxes
- Maintenance
- Delivery/Transportation
Multiply your costs by the number of months before you expect to achieve profitability. Then multiply by 1.25. The extra 25% is to cover the unforeseen miscellaneous expenses.
Sources of financing
The first place to tap is your own resources. Do you have savings? Can you get a second mortgage on your home? If you don't believe in your business enough to risk everything, you don't stand a chance of getting others to.
After your own resources, your family and friends are your best source of capital. After all, they know you and supposedly will want you to succeed. Venture capitalists may be an option, too, but will want a hefty piece of your company in exchange for their money. Still, 51 percent of a growing company is better than 100 percent of nothing! Angels may come to your rescue. These are entrepreneurs who have been successful themselves, and now have money to invest in others with potential and drive. You can find them through networking, even ads in the paper.
Don't forget personal loans, and credit card balances. Many a small business has gotten started by Visa and MasterCard.
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