Starting a business takes a realistic assessment of expenses, planning assets, and most importantly, funding requirements. The second leading cause of small business failure is from under capitalization. (The leading cause is mismanaged growth). Capitalizing your new business means overcoming the high up front startup costs, and making sure that you have enough money in reserve to handle operating expenses for a few months while building your client base or bringing your service or product to the market. Nothing is as disheartening as seeing that your business has failed when it could have succeeded with a bit more money at the right time.
To figure out your capitalization requirements, you are going to need to itemize your start-up costs, like paying for office and work space, warehouse space if you need it, and initial capital investments in equipment, tools and furnishings, plus service fees (attorney time, licensing fees and state permits). You will also need to start the basic utilities – internet, telephone, trash pickup, electricity and water. When you start adding it all up, it can become more than a little daunting.
However, you do not need to do it all at once. Make a priority list. Can you work out of a spare room in your home, or use your garage as your small warehouse? If the type of business lets you do this, then you can postpone a large chunk of continuing overhead expenses by doing exactly that. If you are providing an online service business (marketing assistance, freelance writing, and the like), you may never need to get -real- office space, though there are some serious benefits to doing so. (Not being interrupted by your family during business hours is the least of them!)
Another way to overcome a shortage of capital is sweat equity. When you are starting a business, the most plentiful commodity you have is your back and sweat, and doing things for yourself. It is easy to get into a rut with this, so be sure that you are valuing your time appropriately – remember that the leading cause of business failure is mismanaged growth: Getting into the habit of doing everything yourself, when hiring an employee to free you up to do business management is one of the classic failure patterns. Doing things yourself will give you a gut appreciation of where the money goes, and what jobs you will want to delegate in the future. It will also give you a leg up, when you have employees, to know what all the jobs are, and how to train people to do them to your satisfaction.
Keep an open mind during the business planning phase. Network and talk to other small business owners, and make a habit of going to your local SBDC luncheons every month. Learn from the people who are going through what you went through, or have gone through it before. There will be lots of suggestions on how to manage your business growth.
Finally, be aware of the differences between capital expenditures, sunk costs and recurrent expenses. Or, when it is time to spend money, do not be afraid to do it when the opportunity strikes!