Small business start-up – how much money do you need ?

Money is the big question runs through all the other ones. At the outset of setting up your own business the question tends to revolve around how much money you need to start the business up, both in terms of the funding that the business itself will need, and any money that you or your family needs to survive on whilst the business is being set up and before it starts to make any money in its own right. Again this is an area that is a big reality check that a lot of people, but it comes down to planning and foresight.

If you know you're going to need a certain amount of money, but are not yet in a position to be able to do it that is fine. It gives you an opportunity to think ahead and plan the start of your business at a given point in the future when you know you will have the funds available or be able to get funds. Do not be put off the idea of setting up or running your own business if you do not immediately have the money available to do. You can work on other areas of the setup and get things ready so that when the funding is available you will be able to go ahead and do it.

Have in mind also where you're going to get the money from. It is probably true that you would rather risk someone else's money rather than your own, however banks and other institutions are well aware of this and so often require you to carry a significant portion of the risk yourself as well as risking their money or in fact anyone's money. Funding can come from either yourself, institutions such as banks or small-business banks, Angels, or anyone willing to invest in your business. Be cautious about accepting investment from family or friends, however well-meaning simply because if things do go wrong it puts a whole new dimension on those relationships that you do not want.

Think about also how you want to take the funding. Assuming you have the luxury of choice, funding can come by way of a loan, an overdraft, possible re-mortgaging or by giving some type of equity stake in the business either to a bank or to a private investor by way of a percentage share of the business itself. This is often the preferred route for many people, but obviously means you giving a way share of your business to someone else. Be clear in your own mind if this is a route you are willing to go down, and if so how much equity or capital you are willing to give to someone else and for how much money in return.

When thinking about how much money you will need either to start the business up or to live on whilst the business is developing, it will help to have an idea of how long it will take before your business or service is actually beginning to earn you money. Have in mind that different types of businesses get paid in different ways. If you are in a retail business then customers might pay you cash for the transaction, if you are in different types of service work it may well be that you get paid after a given period of time which could be anything up to ninety days. Bear in mind also that if you are in this type of service work that gets paid after a particular period of time you are likely to have a lot of hassle being paid by suppliers as well as receiving payment from customers or suppliers. There is normally a chain similar to a house buying chain where people need hang onto their money because of cash flow and are reluctant to part with it. Knowing this in advance will allow you to plan for it and plan for the level of hassle as well.

Taking money in as a service or business is not the same as making a profit. Knowing when you are likely to be getting money in as well as when you're likely to be making a profit hugely important. Investors will want to know anticipated date and earnings. You will also need to know when you are likely to start making a profit from the business simply so that you can know when you are likely to become self-supporting in your own right.