Around 20 percent of businesses fail after the first couple of years of opening.
The reason could be that these failed businesses don’t understand the market, they don’t have a profitable product, and they don’t understand the financials of what it takes to run a successful business.
So, how much money do you need to start a business? How much do you need to be successful in your business?
Here’s a guide that tells you what you need to cover the costs of expenses of your business so you’re not burning through cash toward failure.
Assessing the Cost of a Business
Assessing the cost of what it takes to start a business varies. It depends on how big your business will be and how many employees you need to actually jumpstart a business.
For example, starting a home-based business can cost between $3,000 and $5,000. However, if you want to have a business in a building with a certain number of employees, it can cost $30,000 or more.
When you assess the overall cost of your business, you need to figure out a few things beforehand that can save you from financial disaster.
How Much Money Do You Need to Start a Business? Depends on Your Business
Having a construction business will cost differently than having a home-based business. It will be different than having a media and marketing business.
This is why you need to figure out what kind of business you want to start. You need to look at the average costs it takes to start that kind of business.
After you figure out the amount you need to start a business, you need to figure out how you will secure the funding. You can do bootstrapping, which is using your personal savings to pay for the business.
You can also look for investors. They can provide substantial capital for your business, helping it get started.
Overhead costs are the cost of running a business. It could be business insurance, paying employees, utilities, and more.
The overhead costs will typically the same every month. If you want to know how much you are profiting, you can always deduct your overhead costs from your overall profit.
This will give you a gross profit. If you want to make more like a business, you need to figure out how to lower your overhead costs.
You also need to assess the cost it takes to make the product. This is an essential part of your business.
For example, if you sell chairs, you need to assess the cost it takes to buy the wood and the material to make the chair. While the machinery may be a one-time cost, you will have to constantly have to buy the wood.
Product costs are something that you have to replenish each week such as wood, or you can create a product that doesn’t cost anything.
Another example is writing a book. If you have a writing business and you write a book, you don’t need to do any more product work after the book is finished.
Another critical part of knowing how much a business cost is the marketing aspect.
This involves paying for a blog or paid advertisements. If you wanted to promote your business, you may have a marketing plan that has you paying for Facebook ads each month. You may also be paying for other social media platforms.
These costs also vary from business to business depending on how much you want to spend on marketing.
For instance, you can choose to spend $0 on organic content, which is posting on social media and writing on your blog. You don’t have to pay advertisers to show your content.
Have a Business Plan
If you want to be prepared for any financial cost when it comes to starting a business, you need to have a business plan.
A business plan lays out your goals and what materials you need to make your plan work. There should also be a detailed explanation of your product and what it takes to make your product.
A business plan is absolutely necessary when you are first starting and planning your business because it helps keep you accountable. You know exactly what you need and what the costs are associated with your business.
Have an Emergency Fund
Lastly, if you want your business to thrive and be prepare for any scenario, you will need an emergency fund.
This kind of fund helps support your business in case of a pandemic or disaster strikes your business. It helps you pay for expenses and overhead costs if you aren’t profiting enough. It can help sustain your business in difficult times.
To help you save, you should be putting away a good chunk of your revenue toward an emergency fund, so you are prepared in case anything happens.
Now It’s Time to Start a Business
So, how much money do you need to start a business? It will vary, of course, but now that you know the logistics of starting a business, it’s time to get started!
While it may seem like a lot of funding to jumpstart your business, it’s important to remember that you don’t need a lot of funding for every business. You can start a home-based business that is more affordable.
Ultimately having a business plan is the best way to see how much you need and what you need to get started.