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Starting
Your New Business?
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You might be surprised to discover that some of the world's
fastest-growing and most successful small businesses started on a
shoestring. Start-up costs well below $5,000 are common -- and
some ventures require even less cash up front. Yet other
businesses may cost much more to get off the ground.
Regardless of your financial resources, you'll want to
calculate your start-up costs in advance. By doing this, you can
design a plan that will meet those expenses and keep your business
moving ahead during its critical early days.
Here's a quick rundown on the factors that will determine the
cost of launching your new enterprise:
One-time costs. These include a wide range of special
expenses associated with planning, setting up and opening your
business:
- Legal costs. You may need to hire a lawyer to help
you negotiate regulatory issues, create employment contracts
for key workers and perform other legal services.
- Licenses and permits. These costs may be negligible
or substantial depending upon the nature of your operation and
where you do business.
- Real estate deposits and improvements. If you rent or
lease space for your business, your landlord will want a
deposit. You also may need to pay for structural changes
required to prepare the space for your business.
- furniture and fixtures. You might get by with a
couple of desks, computers and a lamp or two at first. But
you'll likely spend significant sums on furniture and fixtures
if you're opening a restaurant or a retail store.
- Inventory. Service businesses have little — if any
inventory, but retail and wholesale companies often spend
large sums in this area.
Working capital. This is the money you will need to keep
your business going until you can cover your operating costs out
of revenue. Plan to have enough working capital on hand to cover
items such as the following during the first few months that you
are in business:
- Replacing inventory and raw materials. You will need
to fund the purchase of inventory out of working capital until
you start to see cash from sales, which could take months.
- Paying employees. Even the most loyal worker wants to
get paid on time, regardless of how much or how little cash
your firm earns during its first months.
- Paying yourself. Unless you've made other
arrangements, you will need to withdraw some money to support
yourself.
- Debt payments. If you've borrowed money to get
started, you probably have to begin repaying it right away.
Missing your first loan payments won't do your credit rating
any good.
- An emergency fund. You need some cash on hand to
cover unforeseen shortfalls that may result from any number of
factors -- delays in getting your space ready, a client who is
slow to pay or slower-than-expected business.
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