But What Now?

by Kathie Larsen, Ph.D.
So many people I talk with these days want to start their own business. It’s quite appealing, working for yourself, doing something you want to do, being independent. But the finances of starting your own business are scary for most people. The intention of this post is to help them be less scary!

This discussion of the finances of starting your own business is not meant to be comprehensive, but simply food for thought.

What is it you want to do? How do you choose? For some people, a business idea grows out of a passion or a long-time interest. For others, a business idea grows out of the necessity of supporting themselves and their family.

There are many resources to help you draw up a business plan and learn the practicalities of starting a business. Research the business you want to start. The Small Business Administration has people to help you develop your business plan, to ask questions you may not of thought about. Who do you know who has started a small business somewhat like what you want to start? Talk with them, ask questions, and ask them what you haven’t considered in your plan.

To start your own business, you’ll need two kinds of money: Seed money for your start-up costs and money to live on while the business gets up and running. The general rule of thumb is that it takes two years in a new business before one earns enough money to be self-supporting. So what do you do between now and then? For most people, continuing their current job as long as possible before quitting to manage their business full-time makes sense. That means they need to come up with money for start-up costs, but can continue to pay the mortgage and put food on the table with the income from their current job or a while.

But how will I ever start a business if I have to keep working at my job? Finding time to work on your business when you are already working full time is a challenge, no doubt. Some people, mindful of this, save start-up funds for their business. They continue their jobs until the new business needs them full-time, and use their savings to support themselves through the early lean times.

What kinds of start-up costs will you have? Do you need to rent office space, for instance, or can you work from home? Renting an office also means expenses like furniture and perhaps an employee or two. What kinds of supplies and equipment will you need? What kinds of work will you need to contract out?

No matter how small your business plans, it takes money to get your business off the ground. The two questions are how much and where will it come from?

Some start up expenses can be delayed. For instance, you may be able to work out of your home initially, even though you’ll need an office later. Or you may be able to use a computer you already have, even though you’ll need more computer equipment later.

Think about routine business expenses:

Rent
Phone and internet connections
Equipment and supplies
Local taxes, like Business and Occupations taxes. There are also start-up expenses such as getting a business license. Every state, every locality is different. Do your research.

Also think about what kinds of things you will need to contract out or hire a consultant for. Often people are reluctant to hire someone else to do something for the business, especially when no money is coming in, but some things it’s unwise to delay. For instance, I believe that every business needs some sort of web presence. If you aren’t proficient in creating websites, I highly recommend that you hire someone to do it. You can start with a simple site at first (and that may be all you will ever need) and add or elaborate as your business grows. You will probably also need to consult with an accountant even if you plan to do your own taxes initially.

Again, it’s important for you to be informed and always do your research – you should be able to plan for how much money you’ll need initially, then how much more in start-up costs you’ll have in the first year or so.