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Do You Have Enough Money to Launch Your Company?

The amount you need will depend on the type of business you want to have.

It takes money to launch a business. The amount you need will depend on the type of business you want to have.

For example, you may need money to buy an existing business or pay a franchise fee. You may also need money to start a new business and spend on equipment, inventory, salaries, advertising, and rent.

You will surely need money to cover your living expenses throughout the process.

But how much money will you need to get started? You can find out by calculating the required budget for capital and operating costs. Check out our latest article on it.

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It takes Money to Launch Your Company

Two Types of Startup Costs

Your business plan should consider two types of startup costs:

  •      Capital costs: Includes startup costs for things you probably won’t need to buy again shortly, such as equipment, vehicles, office supplies, billboards, renovations, or legal fees. The franchise fee payment is an initial cost if you acquire a franchise.
  •      Operating costs: These are monthly expenses such as rent, salaries, data processing, marketing, insurance, electricity and office supplies.

The first step is to look, as much as possible, to get the money for capital and operating costs. You can call or check online for cost estimates from property owners, utility companies, attorneys, office supply stores, and other vendors.

Calculate Costs Using this Formula

While you can try to raise as much money as possible to cover startup costs, you should consider this simple formula to determine an exact amount.

Capital costs + 6 months of operating costs + 10% for unforeseen expenses.

Why use this formula?

  • This formula identifies all your expenses from the start, so you can raise enough money to cover them.
  • You could write off certain capital expenses like monthly payments for the company vehicle instead of paying the total cost upfront, allowing you to put extra cash in your budget.
  • Raising enough money to cover six months of operating costs will give you six months to earn income. Much better if the income arrives before! But don’t depend on that income. You can feel more secure if you raise enough money to cover a year’s operating costs.
  • A 10% contingency budget will allow you to have a reserve for unforeseen expenses that will appear even when you have carefully planned your budget.
  • Also, you may need to use that reserve if the original cost estimate by a vendor changes. For example, some providers offer to guarantee a price for only 90 days. The price may change if you return to buy after that period.

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Where to Get the Funds?

Now that you know how much money you’ll need to launch your business, you can look at these sources of startup funding.

  • Personal funds: Do you have enough savings to cover your starting budget? Self-financing will save you time and effort in seeking funds from outside sources. But don’t invest your life savings in your business; consult with a personal financial services advisor to find out how much money you can safely invest
  • Capital from family and friends: You can ask family members or friends for a loan or ask them to invest in your business. Prepare a written agreement so there is no confusion about how the money will be returned. Make sure both parties agree to this strategy.
  • Investors: The “godparents” investors are business people who want to invest in your company. Generally, they will ask you for two things: to participate in the company’s management and to have a clear exit strategy.
  • Bank loan: Your financial institution will offer various financial solutions such as term loans, lines of credit, business credit cards, etc. Consult a trusted banking specialist about these solutions.
  • Government Programs– Visit your local government website for support programs and grants that may be available to your business

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