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Starting a new company is a thrilling experience – and something that many people are beginning to pursue. According to SBA estimates, over 627,000 new businesses open their doors each year, and it’s easy to see the appeal.
As a business owner, you get to pursue your passions, channel your talents into something you care about and enjoy more flexibility in your life.
However, it’s not always as simple as it seems to be an entrepreneur. After all, while there might be thousands of new businesses opening each year, about 595,000 companies shut down on an annual basis too.
One of the biggest reasons for those failures? Problems with money.
There are plenty of questions that you’ll need to ask yourself before you can get your venture on the road, but some of the most pressing queries will involve your finances.
How Much Will it Cost to Run Your Business?
Running a business isn’t easy (or cheap). However, it could be a lot more affordable today than it used to be. According to recent studies, while the cost of running a small business was around $32,150 ten years ago, it could be a lot lower today.
You could set up a company with just a few hundred dollars, depending on the kind of organization you want to run.
The available technology and a wide range of hiking opportunities on the market today mean that starting your own company has never been easier. However, it still helps to have a basic idea of how much you’re going to spend.
These questions will help you to put those figures together.
What Kind of Business Are You Going to Start?
First of all, you need to decide what kind of company you’re going to be running. Are you looking to sell a product or a service? Ultimately, selling a product means that you’ve got a lot more initial investment to put into your company.
You’ll need production space, storage, raw materials, and even the cash required to ship and package your products.
On the other hand, if you decide to launch a service, then there’s very little initial investment required at all. The main cost that you’re going to see will be in your own time. You’re going to need to figure out how much of the service that you can offer.
For instance, if you’re selling education in the form of one-to-one mentoring online, all you need is a computer and a webcam.
However, you’ll also need to decide how you’re going to allocate your day into sessions with clients. You only have so many hours in the day.
How Much Does it Cost to Make your Product/Service?
Once you’ve figured out what you’re going to sell, the next step is to determine how much production will cost. This can often be a lot easier to figure out when you’re producing a physical product.
For example, if you’re selling cupcakes from a bakery, you know how much you’re going to spend on running your kitchen, buying ingredients, packaging your products, and working with distributors.
On the other hand, if you’re developing software or selling services, you’ll need to think about how much value you’re going to give your time.
It’s easy to forget about the labour that you put into building your business when you’re pricing your products, but this is an essential aspect of understanding how much your company is worth, and how much it’s going to cost to run.
Many startups start by applying the principle of “minimum viable product” to their offerings.
In other words, you figure out how much money you need to make each day to make ends meet. The rest (i.e., profits), comes later.
How Much Help Do You Need?
While it’s not impossible to run a business alone – it is difficult.
Even if you start as a sole entrepreneur producing content for companies in your local area, you may eventually need to invest in some additional help if you want to scale and grow your business.
The number of people you need to hire outright will depend on the kind of business you’re running.
After all, producing a product generally requires more human resources in the form of quality testers, manufacturers, engineers, and more.
The good news?
Whether you’re producing a product or a service, you can cut the costs of your employment needs by switching in-house employees for freelancers and contractors.
With remote workers, you don’t need to pay for office rent and equipment for people who can do admin work from a distance.
However, to ensure that you can rely on your remote workers 24/7, you will have to make sure that they have some necessary IT skills. After all, you won’t be able to send someone a technician if they have problems with their computer in a different country.
Make sure your freelancers have guides and training that they can use to troubleshoot any issues they may have when working with you.
Where is Be Will You Running Your Business?
This question carries on from the one above. If you’re running a small software-based or services-oriented company from home with remote workers to back you up, then you’re going to need very little investment up-front.
There aren’t a lot of overheads involved in running a company from home – aside from paying the gas, electricity, and broadband bills for your house.
On the other hand, if you’re producing a physical product, then you’re going to need to invest in some production facility and warehousing solution.
This means more expense to deal with – particularly in some of the more expensive cities around the world.
You can still cut some costs by reducing your need for an office and investing in remote workers for admin, but you’ll have to consider the costs associated with producing your product still. One option is to find drop-shipping instead of building your products from scratch.
However, this does mean that you’ll be relying on someone else to create your items and send them to customers.
How Quickly will You Burn Through your Savings?
Finally, with a little luck, you started your business with at least a handful of savings. After all, it takes time for a company to start making a profit.
To begin with, there’s a good chance that you’ll be spending a lot more money than you earn. If you’re going to need an ongoing salary, then you’ll need to keep your day job while you’re building your business.
For a few years, you may not be able to make money for yourself from the business at all. Once you do begin earning cash for yourself, don’t expect your income to be huge either. According to studies, 45% of CEOs paid themselves less than $50,000, to begin with.
Ideally, it’s a good idea to ensure that you have enough savings to live without a salary for at least a year before you begin your business.
This way, you’ll be able to put all your time and focus into your new venture, without worrying about income.
Be Prepared for your New Business
Ultimately, while you can’t prepare for every challenge that may come your way when you start a new business, there are some things you can put in place to improve your chances of success.
Having a basic idea of your financial needs is essential if you don’t want to end up as one of the thousands of companies that fail each year.
Spend some time thinking about what kind of money you need to launch your company, and make sure you’re prepared before you dive in.