How much money do you need to start a business?

Before starting, there are several questions that you can ask yourself.

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By Eduardo Figueroa, business consultant and trainer (Paid Contributor)
Published: January 16, 2017

In order to start your business, you need an idea, a plan, and perhaps the most important resource: money. You should ask yourself two questions when looking at financing your business: How much money do I need? And where will I find the money?

To help answer those questions, you need to do your homework.

Estimate your costs

Many people have overly optimistic assumptions about the income they will generate from selling their products and services. Often they don't account for all the necessary investments in equipment, machinery, tools, furniture, facilities, etc. They may also underestimate the costs of the products or raw materials and the operating expenses of the business.

This is likely due to a lack of information, proper research, and preparation before getting started.

One way to get this information is to ask people with successful businesses, whether they're in the same industry or a different one. You can also do the following:

  • Speak with consultants and specialists in the industry

  • Attend seminars and take classes

  • Read books about similar companies

  • Speak with suppliers for the different services and products you will use

  • Obtain relevant information through business associations

To help you further estimate business costs, you should consider whether your expenses will be:

Creating a startup worksheet may help you categorize and better understand how much money you'll need.

Project your sales based on the market

The Competitive Intelligence Tool can give you information about your potential competitors. It's also important to visit and observe possible customers and distributors. For example, if you want to open a bakery, research bakeries in your area. Ask customers what, and how much they buy every week. If you estimate that approximately $10,000 in baked goods is sold at bakeries in your area every week, you can predict the percentage of the sales you can possibly earn based on the amount you plan to produce. 

Your financial projections can also be based on the equipment you'll need to make your baked goods, or perhaps you’ll need a computer or you plan to pay for advertising. Add up the numbers to estimate your monthly expenses.

Determine your plan for financing your business

Now that you have a better idea about the financing you'll need, you may find you don’t have sufficient financial resources to carry out your idea. Ask yourself:

  • Can I start my business on a smaller scale?

  • Should I buy used equipment and furniture?

  • Could I find a location with lower rent?

  • Could I subcontract some services and save money?

  • What can I do to earn an income more quickly?

  • What can I do to decrease costs and expenses?

  • Should I accept potential partners and investors, and what advantages and risks would that involve?

  • Should I wait to start my business until I have more money?

  • Can I apply for business credit to get started?

Explore your options before asking a bank for a loan or seeking financing alternatives to start your business. You can also look into Wells Fargo's Credit Finder Tool.

The Small Business Administration provides several government loan types that include loans to help start or expand your business. Additionally, there are federal grants available to non-commercial organizations, such as non-profits and educational institutions in areas such as medicine, education, scientific research, and technology development.

Crowdfunding is also an alternative form of financing your business plan and has helped small businesses in industries like technology, design, and food to name a few.

These considerations will allow you to plan your launch better and reduce the risk of early failure — all at the best time for you and your finances. Learn more about business credit options before you apply.

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