Saving to start-up
Your Business Stage
You know how to save for big purchases like a new car, a dream vacation or kitchen makeover.
Saving up to finance the launch of your new business should be no different. Just follow these three tips to make it a little bit easier…and safer.
Set a start-up budget
You can’t hit the savings target unless you can see it. The first step involves researching costs and preparing a budget to determine just how much money you’ll realistically need to launch and support your new business.
I like to use this easy formula to calculate launch money requirements:
• Start-up Costs = Capital + 6 months of Working Capital.
• Where capital includes all of those one-time costs, usually for bigger business items like equipment, vehicles and renovations.
• Working capital includes “softer” costs you’ll likely incur monthly, such as rent, employee wages, office supplies, telephone, Internet access and advertising. Price out each of those expenses for a six-month period.
• Leave revenue out of it. Assume your new business won’t earn a penny for the first six months. If it does, bonus.
(Use the Scotia Cash Flow for business Tool to plot out revenue and expenses.)
Consult your financial advisors
Now that you know how much money you’ll need to save to launch the business, sit down with your personal financial advisor and Small Business advisor to figure out how much you can reasonably set aside each month.
If you plan to fully finance your start-up from savings, it may take you awhile to amass the required funds. You do have other options to raise that money.
Don’t bet the house
Starting a business is exciting (I should know…I’ve started eleven companies!). Wrapped up in ambition and enthusiasm, it’s easy for new entrepreneurs to personally invest (or secure) more money than they reasonably should in the new venture.
While you can embrace controls to mitigate your risk, there is no guarantee of return from your business. It’s therefore wise to limit your personal investment to an amount that won’t put your family’s financial future in jeopardy.
Again, speak to a qualified advisor to figure out a suitable financial strategy to fund your start-up business.
How financially risky is it to launch a business? What advice can you share to make starting up financially safer?
By Roger Pierce