How much in savings should I have before starting a business?
I have often heard that making money from your own business always takes longer than expected. I have planned for 6 months with no income. Is that enough?
Making money from your own business doesn't take long at all if you buy a business that is already generating cash flow, net profit and has working capital and still has potential for a big upside. With over 10,000 baby boomers retiring every day and many being small business owners, it is worth at least thinking about buying a business. Often smaller business owners (between $2M - $10M) in revenues looking to retire are looking for someone who will continue to grow their business and may even be willing to finance the majority of the sale themselves.
Then you pay the note our of net profit already being generated while drawing a fair market salary day one. Just make sure the numbers work in terms of net profit etc and you work with a forensic CPA and experience business lawyer to help you through the transaction.
Several places you can look for businesses for sell online but I recommend asking friends, family and business contacts if they know of anyone who might be looking to sell. Even asking LinkedIn connections via message. That way you have first mover advantage and can avoid extra expenses of a business broker which is usually the case for business for sale listings online.
A good book on buying and selling businesses is "Buying & Selling a Business" by Garrett Sutton, ESQ.
All the best in whatever you decide to do.
Starting a proven business in a box typically takes a minimum of $300-$1200 investment. Marketing plans have an expense, so you know who will buy the product or service. What is the business?
Look for ways to get paid in advance. Also, can the business you have in mind be started while you're still employed? As a lapsed accountant and banker, I was trained in the apparent wisdom of having such and such in savings, etc. However, when I went out on my own I realized that it's much more important to get the subconscious programming sorted out so I love money, love business, love entrepreneurs, love wealthy people/wealth, etc., as blocks in these areas (and others) are what kills first time entrepreneurs (well, their businesses), no matter how well-intentioned they are, how much action they take, and how much they've saved.
When you start a business, you will come face to face with any inner blocks and barriers you have, so best to sort that out before you get started. Then you will start seeing ways to start with little or no capital, because your subconscious mind will show you, rather than protecting you from the foreseeable consequences of your hidden inner blocks and barriers.
What kind of business?
I stated with $13.68. You will need to know the costs of your startup, then you can see about acquiring the funds. Service businesses cost very little. If you're thinking you need certain things on place it maybe a fear of starting. Go for it!
My little startup did millions!
A serious minded person who is anxious to start business and grow it big, does not need so much to start a business.What matters is planning and serious concentration Some entrepreneurs start with nothing. The whole show is that customers getting confidence in you, and you utilized their money.
Obviously more is always better but don't listen to prognostications of time. DON"T LOOK AT YOUR SAVINGS AS AN EXCUSE NOT TO EARN right away (or whatever that means in your selling cycle) I would tell you that in the great majority of personal businesses if you aren't showing positive signs in billings/contracts/sales/revenue in 6 months you've got a fundamental missing. So the real issue is what are you doing to prepare your business. Do you know how to sell professionally? Have you identified your target customer and where and how you will find them? Do you have proven value in your product/service on a small scale that you believe can scale? Do you believe in yourself? How much does being successful matter to you and how do you define it? Are you in business for yourself because it is your passion or you just want an easier/better job/boss? Do you have a business plan, a marketing plan, a prospecting plan? Do you know how many times you have to do whatever the required behaviors are (on average) to generate a customer/sale. Get those answers right and 6 months is plenty with the expectation that income will build if you are doing it right.
It depends on your type of business , some business needs more than six months - someother business need less >
You should read $100 Start Up by Chris Guillebeau - he made me so confident in where I was in my planning I went for it with 6 months money - got a bit scary around month 4 and I've had to be conservative in my own spending but have no regrets. Others give you much more practical advice below which I am not saying for one moment you should ignore - all I am saying is you WILL know when the time is right.
6 months could be enough, but not likely. I'd plan for not taking a salary for 2 years. each case will be different, but in order to expand, you are going to continue to need capital along the way.
What really counts in my experience is deciding you want to start and getting into action. The world responds well to that.
Pieter Kark, MD
How much money will depend not only on how quickly you will get clients, but also on the type of the business you are starting. I do not know what business you are in, but you will also need to have enough money for months that are traditionally slow month in your given profession.
Good luck with your endeavors.
Jane, you need to consider the following and they all should be included in your Business Plan:
1. How much money do you require without any income to survive 24 months.
2. What amount of money do you need to invest into your business to keep it running
24 months. Take the worst case scenario according to your business plan.
3. Have an exit plan which describes the time and cost to get out of the business again and find you a new income stream.
As everyone tends to be over optimistic with their own numbers you should present them to someone who understands numbers and is not afraid to tell you the truth.
And don't forget to update your business plan as you go along. It should be alive and not lying around.
All the best with your new business!
The answer to this question depends a lot on the kind of business you are starting and your expectations for revenue growth. You are correct about one thing... it usually takes much longer to reach break even sustainability than most business people realize.
When clients ask me about this, I give them this reply. Plan to operate with your own money for 24 months. The more money you can put away beforehand, the less you will need to rely on other people's money.
Your start up costs should include some amount of draw for yourself. If nothing else, getting a little payment for your efforts goes a long way to keeping the motivation for continuing.
Ultimately, however long it takes will depend on how well you identify your ideal clients and are able to market to them. Don't forget that as a solo operator, you have only so much capacity. Barring the inclusion of technology, you will eventually reach a limit on the amount of business you can conduct by yourself. At this limit, will you be profitable enough to live on your own proceeds? Will you have enough to invest in some help so you can continue to expand.
If at all possible, I would find a way to increase your financial cushion. When you get to the end of your money source and you are still not in profit range, that's when most entrepreneurs throw in the towel or take on ill advised debt which leads to BK.
No, six months is not enough. 18 months would most likely be sufficient, this gives you one year to establish an income flow and 6 months in case it doesn't work out. However, the actual time depends on what your break even is projected at and from there I would add 6 months,
There are a lot of things you need to consider that you haven't supplied such as the type of business and the expected cost of doing business. For example do you need inventory and do you supplies such as licenses, do you pay for shipping, do you need cloud access or hosting, .....
Starting a business in some cases is like pouring money down a hole, best intentions do not necessarily mean success. Expect the best but plan for the worst, you never know what the economy will turn to.
The simplistic answer is you need enough money saved to last until you have enough customers or clients to replace the need to use those savings. For some startups, it could be six months. For a lucky few, it could be less. Unfortunately, for a significant number of startups, they never reach a level where the business becomes self-sustaining.
Before you start your business, realize that the world is getting along perfectly fine (or so it thinks) without your product or service. In order to succeed, you must convince enough folks that they have a problem and that your solution is the best of all alternatives. Don’t underestimate the difficulty of achieving this result.
Whatever amount you decide to save before starting, have a strong plan in place to generate the business you’ll need in that time frame. Have something in place that will indicate if your plan is working early on. If it isn’t, make adjustments. What you don’t want to occur is that you have six months in savings and don’t know that your plans for client acquisition are far under goal until five and a half months down the road.
Best of luck to you!
How long will it take you to get your business profitable? Many businesses struggle and take longer than expected to take off because the owner under-estimates how much effort is required to get going and/or isn't focused on the right things initially.
What will be your average ticket revenue? How long do you expect your sales cycle to be? Is it product or service sales? How long is your delivery cycle? What do you expect your ramping up period to look like?
Knowing more about your business would help to provide more specific answers.
I would suggest you develop a budget and plan for best , realistic and worse case.... Then figure out if 6 months is realistic before you start to make money, then a year is worst case and so on.. I suggest you work with a Score counselor near you to develop organized business plans...
Every business is different, but to determine an answer to your question is the same.
Whether you are a numbers person or not, you need to project your "break even" point. Project your sales month-by-month and project your expenses the same way. Some of your expenses will vary by the level of your sales ('cost of goods and services', sales commissions or the cost of making what you sell, for example) and some will be fixed (e.g. telephone, rent, etc.). Project those all out month-by-month and determine at what month your revenue exceeds your total expenses. That is your break-even month.
Add up your total financial losses from each month until your break even point and that will tell you how much savings you need to cover the early losses. If you are 100% confident of your projection, you are done. However, usually it is important to consider a 'worst case' scenario to ensure enough savings to get your through.
I don't know you or your business but the majority of new business owners I work with totally overestimate the early sales they will create. Positive results just do not usually happen as quickly as expected. I have a free video that you might find useful entitled "The 3 Biggest Lead Generation Mistakes Small Businesses Make... And How to Overcome Them All". It can be found here: http://bit.ly/1SksiPq
I applaud your asking the question, because it is an important one. I hope I have provided some assistance.