Earn 1.45% APY on your money with an Alliant High-Rate Savings Account.
Get upfront pricing, guaranteed savings, and a discounted rate on your auto loan. Members save an average of $3,383 off MSRP.
Earn top dollar with rates up to 2.40%APY.
Earn rewards, get cash back or take advantage of a low standard variable rate.
Return to The Money Mentor Blog
By Thomas Muellner
The allure of becoming your own boss is enough to get any entrepreneurial nine-to-fiver out of their cubicle chair. But making the leap from business concept to real-life success takes financial resources, an airtight plan and hours of sweat equity.
It’s no small task, which is why approximately half of all new businesses don’t make it past five years.
Still, finding firm ground as a business owner can be a truly rewarding experience, as well as financially lucrative. And the road to success starts with understanding how much money you’ll need to reach your business goals.
Whether you’re looking to transition your side hustle into a full-time gig or you’re launching a new idea from the bottom up, keep these tips in mind when planning expenses for your new business.
As you might imagine, there’s no one-size-fits-all number when it comes to funding a new business. The investment needed to launch a local dog walking service is different than a retail store or restaurant; a tech startup requires different resources than a construction company.
When thinking about the capital you’ll need to get going, start with the basics first. Typical expenses might include:
Once you’ve done that, outline other purchases and recurring expenses that are required to make your business move. This might include special manufacturing or equipment costs, inventory, or other professional services, such as building a website for your business.
While you might feel sticker shock after calculating your business’ startup expenses, know that you don’t need to be a millionaire to launch a successful new business. According to U.S. Census data, over the past decade, more than 40 percent of all small businesses started for under $5,000.
One of the biggest ways to reach profitability on a limited budget is to keep a bootstrap mentality. This means limiting your business expenditures to the bare minimum and seeking alternative solutions to costly business needs.
For example, you may look to work with clients out of your home or at a community workspace rather than renting an office. By the same principle, you may buy gently used equipment or second-hand furniture to cut costs. It depends for every business.
Likewise, when you’re first getting off the ground, it can be wise to wear a variety of different hats - CEO, accountant, marketing guru - rather than outsourcing these services at an inflated cost.
Before or soon after your business launches, you may find that you need an influx of cash in order to stay above water. If you’re lucky, you might also need the cash to expand – to fill a large order or hire additional staff to meet demand.
Tighter lending practices have made it harder for owners to secure small business loans in recent years; however, many credit unions and banks still offer a viable option to owners seeking funding for small businesses.
If you find that you’re in need of additional funds, just be sure that you know exactly what you need those funds for and how obtaining them will result in a return for your business. This is also a good time to fine tune your credit score and earmark any assets you might be able to provide as collateral.
Alternatively, you can look to raise funds through investors. But whether it’s a family member, colleague, or business-minded acquaintance who’s willing to provide funds, know that any additional cash you secure by going this route will likely come with conditions. In addition to giving up equity in your company, you’ll spend valuable time drafting proposals and pitching your business contacts - time that could otherwise be spent building your business.
For nine-to-fivers, the common wisdom is to keep about three months of living expenses stashed away for emergencies. If you’re an entrepreneur or self-employed, you may need closer to six months or a year.
The bottom line is that, regardless of your new venture, you don’t want a failed attempt in the business world to put you in personal financial ruin.
Restructuring your business from a sole proprietorship to a corporation or limited liability company can help limit what you’re personally on the hook for, should things go south. Moreover, obtaining insurance specific to your business can greatly reduce the risk of lasting financial damage from an accident or customer issue.
The primary mission of any new business is to reach a breakeven point. This is when the money generated by the business (revenue) is greater than or equal to expenses. While you still may have debt from startup costs, it’s a clear sign that you’re healthy and heading in the right direction. It can also be a strong signal to expand.
However, you may not reach this point for many months or even years - or ever. And to get to it, you may be investing thousands of dollars of your own money. Because of this, it can be smart to put a cap on what you’re willing to invest on your own at the outset. Then commit to calling it quits if you’re not trending toward profitability once those funds have been exhausted. It’s an undoubtedly tough judgment call that every business owner needs to make on their own.
Still, with the right attitude, some strategic planning and a bit of good fortune, there’s nothing stopping you from putting your business in the black for good. As they say, nothing ventured, nothing gained.