Saving to start-up

Calculate your start-up budget and make a savings plan.

You plan to be in business for a long time, so often it can be worth taking some time to save the money you’ll need to launch it. Use this article to learn how to calculate your start-up budget and make a savings plan you can live with.

Can you save enough?

You know you’ll need to put aside some of your own money to fund your new business – but can you save enough to cover your start-up budget?

You know how to save for big purchases like a new car, a dream vacation or a 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.

1. Begin with 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.

Consider this formula to calculate the amount of money you may need to launch your business:

  • Start-up Costs = Capital + 6 months of Working Capital

Working capital includes all of those one-time hard costs you may buy during the set-up stage such as equipment, vehicles and renovations. Things you probably won’t need to buy again for many years.

It also includes ‘softer’ costs you’ll 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.

Combine the two and you’ll have a fairly conservative start-up budget. You might add another 10% as a contingency budget to cover unexpected expenses.

Knowing how much money you’ll need to get going will let you design a strategy to raise those funds.

Notice the formula omits sales

Leave revenue out of it. Assume your new business won’t earn a penny for the first six months. If it does earn revenue, you’ll be on much firmer financial ground. But you should plan as if you won’t close any sales during the period your business is being introduced to the marketplace.

2. 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 accountant if you have one) to figure out how much you can reasonably set aside each month from your existing income.

For example, if you can afford it, you might be able to save $1000 a month toward your business start-up costs.

Other options

If you plan to finance your start-up exclusively from your personal savings, it’ll take awhile. If you are in more of a hurry, you might want to explore other sources of financing including lenders, investors, government programs – and your existing savings. Just be sure to have a conversation with your financial advisor to see how much of your existing cash you can afford to invest in the business.

Save money by changing the scale of the business

Once you know your start-up budget you may decide to scale back your original plans to come up with a model that’s more affordable to implement. For example:

  • Start a part-time business rather than full time.
  • Open a website instead of a storefront.
  • Rent a kitchen instead of starting a restaurant.
  • Work with complementary businesses to reduce marketing or distribution costs.

3. Don’t bet the house

Starting a business is exciting! Pumped up with ambition and enthusiasm, it’s easy for a new entrepreneur to personally invest more money in the venture than they can afford.

While you can take steps to help mitigate your financial risk (such as starting a part-time business), there is no guarantee of a 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.

Speak to a qualified advisor to figure out a suitable financial strategy to fund your start-up business.

Next steps