Friday, June 12, 2009

Start-up Tip - What Will It Cost to Start Your Business?

When a group of entrepreneurs called me a few months ago about editing their business plan, I asked them how much money they wanted to raise. They said $150 million! I truly could not believe my ears. How could a new venture possibly cost that much?

Well, they were planning on purchasing all sorts of heavy equipment to create a renewable energy business and setting up shop in several states. Another potential client needed $1.5 million to pay lobbyists to help effect legislative changes that would make their business more viable and create demand.

Even in a booming economy, these are not reasonable start-up expenses, in my humble opinion.

But in a recession, you really need to consider bootstrapping. Start as small as you can and expand organically, plowing profits back into the business. Capital has dried up. Banks still are not lending; lines of credit are shrinking; friends and family don't have disposable cash to lend or invest; VCs and angels are pickier than ever.

So you need to ask yourself, what is the minimum I need to get started? Write down the expected expenditures on paper or in a financial computer program like Excel. Make yourself a spread sheet. Think of the cash that will need to come in to cover monthly expenses and capital expenditures. Ask yourself if you can go without a salary? Without benefits?

Here are items you need to think of:
Cost of you producing your product:
Raw materials
labor
machinery
warehousing, picking and shipping

Overhead:
office or factory or warehouse space
some office equipment
supplies
communications
IT
legal
accounting
insurance
travel
entertainment
marketing - advertising, pr, promotion, website, branding, graphic design, trade shows, etc.
patents

Depreciation
Interest
Taxes

Capital expenditures and leases
cars
equipment
land
software

The list goes on -- What can you do without? What is essential? Do you need to create samples? Brochures?

Figure it out and write it down.

If you need help, go to the Small Business Administration (www.sba.gov). I also consult or can provide my written guidelines to financial planning. email me at upstartwyn@gmail.com -- I know how to demystify financial projections and using Excel.

www.upstartbusinessplanning.com.
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