How Much Money Do I Need to Start a Small Business

One of the biggest obstacles people face when starting a small business is cost. We tend to imagine starting a business as “expensive” and often end the thought there. Getting a more accurate, useful estimate can be too intimidating a process.

Today we’re going discuss some ways to overcome that hurdle and land on a more accurate estimate. From there, starting a business can seem less a nebulous dream and more a clear idea with obvious goalposts.

Where to Begin

Once you decide you intend to start a small business, you have some work ahead of you. It isn’t easy but also isn’t as hard as many people imagine.

You’re going to need a relatively large amount of capital. But to estimate how much, you first need to have a solid picture of the business you’re starting.

Write down some small business ideas that interest you. Then do some research to see how viable they are. 

If you’re willing to move (or commute), that usually greatly expands your options. Location choice is very important for most types of businesses. The more you expand your radius, the better options you tend to have.

Once you have a viable idea and a location, you can start to estimate costs. The U.S. Small Business Administration has an incredibly helpful guide on this subject.

You’re going to need to figure out both estimated one-off costs and your expected monthly expenses. You’ll want an accurate estimate of at least your expenses for a year and ideally your expenses for the first five years the business will be running.

Estimating costs can be a tricky thing. Remember not to cut corners and ignore costs that are confusing to calculate. It is better to raise more capital than you need than suddenly hit a point where you need more money for your business than you have.

Funding Your Small Business

With your costs estimated, you’re about ready to start securing funding. 

Exactly how much you’ll need can vary—a lot. The Ewing Marion Kauffman Foundation estimates the average cost of starting a business to sit around 30,000 dollars.

However, a small business run from one’s home might cost 10,000 dollars or significantly less. Meanwhile, a larger venture with a few employees may cost over 100,000 dollars. It all depends on what your exact goal is.

These are numbers most people can’t just pay for out of pocket. Unless you have a few years of solid savings behind you, you’re going to need investors. 

Bear in mind, you don’t necessarily have to raise everything you’ll need to pay by the end of year 1. By estimating your gross income, you cut a bit into how much you actually need to raise.

The problem is that few businesses are profitable by the end of their first year. So no matter what (unless you’re very lucky), you’re going to need to raise some capital. Most business owners should expect to need at least a few tens of thousands of dollars to safely start a business.

Funding Sources

With your estimates made, it is time to raise funds. Because you’ll be asking for quite a lot of money, you’ll want to write a business plan. This plan essentially outlines why you’re asking for what you are and why anyone should believe the business can succeed.

The ideal source of funding will be from friends and family. The reality is this group of people will give usually give excellent rates on loans. They probably won’t view it purely as a business opportunity but instead a way to help someone who matters to them succeed.

The issue is that friends and family usually won’t have the capital to give you everything you need. You may also rightfully worry some may feel pressured to give more than they really can afford. 

Whether you get the help of friends and family or not, you’re also going to need some outside investors. This type of investment comes in many different forms, including:

  • Private Small Business Loans: Usually provided by loan companies or banks, these loans are obtained by convincing private companies you’re worth investing in (and will be able to pay back their loan).
  • Government Small Business Loans: The U.S. Small Business Administration (and some other government organization also offers loans; you should do some research to see if you qualify and if the loan rates are competitive.
  • Crowdfunding: A newer option, this is option has you asking for money on crowdfunding sites like Kickstarter or GoFundMe. It can be a great way to raise money if you have a strong marketing pitch and social media presence.

You also can raise more money later if you need to. For example, we offer business loans to companies who have been around at least 6 months and pull in at least 5000 dollars a month in revenue. 

If your business has been going a while and you need money for expansion, don’t think you necessarily need to wait. You don’t have only one chance to raise funds. If you think you need more money, start trying to raise more money!

Combine a Drive to Succeed with Realistic Expectations

If you want to successfully raise funds for a small business, remember to keep your head out of the clouds. Don’t skew estimates because it makes an idea look better on paper. Figure out how much money your business is actually likely to need.

The more money you need, the better your business plan will have to be. You’ll also have to be able to demonstrate you can still realistically pay back the loan.

That all said, this isn’t just luck. A solid plan and a drive to create the business you want can get you far. A workable idea is a workable idea.

If you’re interested in more information on loans, we at Quick Loans America would love to hear from you. Contact us so we can discuss your options and hopefully help you land one of our loans!


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