Starting your dream business isn't going to be cheap, but there are effective ways to save for it. Here are some ideas for planning and saving.
Starting a business is an exciting opportunity. You get to create something tangible from your own ideas, nurture it to fruition and, hopefully, earn enough revenue to make a decent living. If you work hard and have a bit of luck on your side, it could even allow you to retire early with plenty in the bank.
Of course, starting a business and building initial momentum is the hardest part of the process and shouldn't be underestimated. Starting a business from scratch, on average, costs about $30,000. Obviously, this isn't the cost for all businesses; in fact, it's possible to start a business with just a few hundred dollars. But before you get started, you'll need to understand exactly how much your business is going to demand, and how you're going to save that money.
Outlining business costs
One of the most important parts of the process, before actually saving money, is understanding how much you need to save. Before you put any savings plan into action, you should have a thorough understanding of how much your business is going to cost.
- Regular expenses: Think about what you'll pay to keep the doors open on a regular basis, including the cost of your goods, your employee salaries, office costs, insurance costs and daily expenses you'll need to stay in operation.
- Irregular expenses: You should also factor in non-daily expenses, including startup costs like down payments, new equipment and semi-regular expenses like travel.
- A margin of error: No matter how good you think you are at estimating your business costs, you're probably missing at least a few important items. Make sure your budget includes a margin of error in it so those unanticipated costs won't disrupt your potential for success. Always save more than you think you'll need.
Budgeting and saving
There's no secret "super" method to save money for a business. The best way is also the simplest: Plan and distribute your income efficiently, using a budget to ensure you have at least some money left over every month, and keep growing that total until your expenses are covered. Here are some fast tips on how to do that efficiently:
- Rely on tools. There are many online tools and resources to consult when planning your budget, including interactive budgeting calculators, so take advantage of them when working toward your goals. There's no reason you should have to do all the manual calculations by yourself.
- Start with your income. Everything starts with your income; it's your biggest limiting factor. Try to increase your income however you can – by getting a raise, seeking a different job opportunity, or pursuing side gigs and passive income streams.
- Cut unnecessary expenses. Next, work on cutting any unnecessary expenses that chip away at that income. Take a look at how much you spend on subscription services, and how much you spend at restaurants each month. These are easy cuts that can usually free up at least a couple hundred dollars a month.
- Reduce your necessary expenses. Once you've trimmed the unnecessary portion of your budget, look at your necessary expenses and see if they can be reduced. For example, can you save money on groceries by shopping at a different store? Can you downsize your home and reduce your rent?
- Make savings the goal, and build around them. There are many little ways to trim costs or make extra income, but the fastest way to become successful is to make saving your first priority. Set a savings goal each month and treat it like an expense; make everything fit around that vision of your budget.
If your business will cost a lot of money, or you want to start faster than your budget will allow, there are many other financial options to get a jump-start on your business.
- Cheaper options: First, see if there are other, less expensive ways to start your business. Opting for online-only or fully remote business models could shave thousands off your monthly operating expenses.
- Friends and family: Contact friends and family members who may be interested in backing your venture; they may be able to put you over the finish line.
- Venture capital: Consider attracting capital from venture capitalists; the only catch here is that you'll usually need to forfeit a percentage of ownership in your company.
- Angel investments: Similar to venture capitalists, angel investors are more independent agents and may be more flexible on terms.
- Crowdfunding: If you're producing something tangible, you could always try crowdfunding to raise the extra capital you need for your first production run.
There's no right or wrong way to finance a business, so long as you know the pros and cons of your chosen method. Budgeting and saving are the best way to get money for a business if you want to do it entirely on your own. In any case, understanding your business's financial needs in depth will help you better prepare for the next phase of your development.