Startup and Operating Capital
by Phil Hanson
Every business needs capital to support day-to-day operations, which may include equipment and materials, licenses and permits, insurance, credit costs and repayment schedules, transportation, utilities, wages, and a myriad of other things. Don’t sell short the importance of adequate funding.
In addition to business expenses, you’ll still have ongoing household and personal expenses to pay. These won’t stop just because you opted for self-employment. If income from your new business won’t immediately replace your income from the job you’re giving up, keep the job and run your home-based business as a sideline enterprise until it’s economically viable.
At the very least, you should be financially prepared to operate your business for a minimum of six months even if your business doesn’t show a nickel’s worth of profit during that time. Monetary reserves that can carry you for a year or two will vastly improve your chances of putting your business on a firm financial footing.
While startup capital may be available from your bank, the Small Business Administration, a private investor or venture capital firm, it might be useful to know that the more you need the money the less likely someone is to lend it to you. When it comes to signing on the dotted line regarding loans or partnerships, it’s not bad advice to seek advice from your lawyer and your accountant.
Unless you have a proven track record of business startup success, it’s risky business to mortgage your house or sell your car to get the necessary funding. You won’t improve your support system by undermining it.
Unless you have deep pockets, or have trusted family or friends who do, you’ll probably be better served if you err on the side of caution. Start out slow, acquire the resources you need, get the knowledge, gain the experience, and develop your customer base. You’ll know soon enough when your business is viable and sustainable.
That’s when you’ll make the final leap.
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