Tuesday, June 22, 2010

Set yourself up for success. How much Capital do you really need to get your business up and running?

A common mistake for many failed businesses is having insufficient operating funds. Entrepreneurs often underestimate how much money is needed and they are often forced to close shop before they even have a chance to be succesful. So how much capital do you really need to start your business?

Obviously each business is very different, and the start-up costs will vary, but the concepts are the same across the board. Here is some food for thought as you pull together or update your business plan. Most expenses can be broken down into these broad categories. When calculating labor and salaries, consider the cost of benefits.



• Technology Costs: Hardware, software, phone systems or cell phones, websites, internet access, security, and IT consulting.

• Administrative Costs: Business insurance, salaries, office supplies, licenses, permits, postage, rent, utilities, office furniture, professional fees and legal fees.

• Cost of Goods Sold: Raw Materials, Inventory, Labor, Equipment, shipping, and warehousing.

• Marketing Costs: Print collateral, PR, events, tradeshows, association memberships, salaries, sales travel.



Many companies differentiate between startup-costs, fixed expenses, and variable expenses. Start-up costs are one- time expenses associated with the start-up of the business. Fixed costs remain constant no matter what the sales volume is, while variable costs are a function of sales.

Once you have these categories and expenses detailed, you will need to determine how long it is going to take until you have enough sales to cover your operating costs. Be conservative in your estimates. It is common for business owners to underestimate expenses and overestimate sales. It takes many businesses months or even years, before they are fully able to cover the operating costs. Are you financially prepared for the long haul or do you need strategies to come up with additional capital?

Amanda Wodzenski is a regular blogger for the WSBA, and the owner of CRMastermind, a consulting company that specializes in CRM and e-mail marketing for Small Business. Visit her blog Your Small Biz Technocoach.

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