Start a Business From the Ground Up – Do I Have the Money?

Money is the lifeblood of business. Most startups always starve for cash. It is easy to lose track of how much money needs to be spend on a dream amid the startup euphoria. Because the chance that all invested funds will be lost is very high, the question “How much Money I am willing to lose in a start up?” has to be answered in the pre-start up stage.

The most reliable source of money is you.

Find out how much cash is available to you in the very beginning. Your sources are personal savings, valuables that can be converted into cash, family, relatives, and friends. It is important to distinguish between reliable and hypothetical sources. Potential bank loans and promises from attendees of family festivities should not count as cash. It is highly unlikely that a bank or anyone out of your immediate family circle will give a loan for unproven concept.

Also, you have to be alert when signing any type of loan documents. Most lenders will require a collateral. Careful, if the endeavor fails you still have to live somewhere and need stuff to function.

Often entrepreneurs hope that angel investors or venture capital firms will invest in their ideas. Working prototypes with real users and potential for growth of mostly technology companies attract investments. No one will be spend money on idea or early stage developments. Loans and investments for mainstream business are virtually not available.

Do not forget the necessary personal expenses.

Starting a business is very exciting! And, it is easy to lose track of simple things like basic personal expenses. Knowing where you are going to live, how much you will need for food, utilities and other personal expenses is essential to determine the amount you need every month to survive. It took me years to learn that in order to start a company from a garage you have to have a garage. Be realistic and make these calculations early. Frugality is one of the best friends that a business owner has.

Determine how much money is available for a new venture.

To identify how much money is available for a startup, subtract six months worth of personal expenses from all funds available. The result is what is available to pursue a dream. The number will change if parents or relatives offer free shelter, lend a vehicle or cover other routine personal expenses. The total amount of money available to you should never equal the money willing to lose in a startup. The total amount dedicated to a startup should not exceed 30% of total amount available to you. Thus, if the business fails you can come back to test another idea. Otherwise, you may be out of the entrepreneurial world for a long time.

Establish a strict money limit for a startup.

Establish a money limit for the new venture before starting. Three to six months of time and predetermined dollar amount are enough to learn if the idea makes sense and will produce results. It is essential to cut your losses at earlier decided date. Usually, is very tempting to think that if you had another month or a few thousands dollars extra things will turn for better. Avoid this trap by deciding when to stop spending money and time on the venture before you start.

By stop spending money on a failing venture you can comeback faster to explore another idea. Starting a business is a highly emotional experience. Jumping in is easy, killing your “baby” is very difficult. Hoping for miracles is always counterproductive and damaging.

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