This week I want to talk about making sure you have enough money to start your business. Think of your business as a living organism and money is the lifeblood. How do you know if you have enough capital to start your business? If you are under-capitalized, you won’t have enough money to survive, then you’re going to have to shut it down or borrow money to keep your business afloat. Not that that’s bad, because if you have a great idea, you need to do what you need to do to keep your business going.
The first thing you need to do is come up with a budget. How much is it going to cost for you to run your business on a monthly basis? Don’t think about how much money you’re going to bringing in, think about how much money you’re going to be spending. A lot of times this may be a crapshoot, but look at your rent and marketing costs. When you first start out, you’ll have to spend more on marketing, and then it can go down, but you need a good boost straightaway so you get more clients.
List out all you expenses and one-time purchases for the equipment that you’re going to buy. Then add 20% at least to it. That’s your month. You need to have about six months to a year’s worth available to you. It doesn’t have to be all in cash. It could be in a line of credit. It could be a friend who is willing to loan you the money.
You need to know exactly from the first month how much you need to get started. Then look at your revenue. Is it going to take you six months to get to a point where you’re at break even, or is it going to take you a year, or two years?
If you’re in the service industry, I’m going to challenge to say that it shouldn’t take you more than six months to twelve months to become break even. I did my Delta Life program and we became break-even at six months. It absolutely can be done, it takes a little bit more hustle to get there, but you can get to break even. Break even though, doesn’t necessarily mean paying yourself, so make sure that you’re taking that into account as well, or paying back investors and all that piece.
You have to make sure that you have enough capital to start your business, and not just to start it, but to maintain it for a certain amount of time based on when you believe you will be break even. I love spreadsheets and when I first started my first business, I probably did a little bit too much analysis, and I had a lot of cash available, but I got a little sloppy. I started spending it on things that I wasn’t making sure that I was getting a return on investment for.
Be sure that you’re not over-analyzing or under analyzing. That’s why I would recommend adding 20% because there’s always going to be that Murphy factor that comes in. If you’d like to get a copy of an Excel Proforma spreadsheet, Â schedule a strategy call with me and we can go over that together. It only takes about 30-45 minutes, but it’s better than if I just send you the spreadsheet because you probably won’t understand it. I’ve put in formulas as tools. I’d love to help you out with that free of charge of course
If you’re thinking of going into business, or you’re expanding your current business, or you just need to get a refresher on that, feel free to contact me, tom@tomjackobs.com, request a consultation, and we can get on the straight away. I hope this is helpful for you to get those creative juices flowing to make sure that you have enough capital to get your business off the ground but also to maintain it so that you can thrive as a business owner.
