How much money do you need to start a business in 2020?
Did you know that 90% of startup companies fail within their first few years of operation? This is not exactly the most encouraging statistic for people interested in starting a business in 2020, but there is an important lesson in this statistic that can help you pave the path to success: Most new companies fail because they do not have a good financial strategy.
Having enough money to start a business is not as simple as reaching some magic number and then going for broke. You need to have a well-rounded financial strategy that includes estimating your costs of operation and what cash flow you can realistically expect.
Estimating your costs
The U.S. Census data reports that the average startup costs around $11,000. However, the actual amount that you will need depends on several variables, like what type of business you want to start. For example, starting your own professional or technical business, such as web design, can have very little start up costs. Opening up your own medical private practice can cost much more. Do some research in your field, talk to other entrepreneurs and find out what the average cost would be for someone in your profession to start their own business.
Other factors to keep in mind when estimating costs include:
- Your office space
- Equipment and supplies
- Licenses and permits
- Salaries for employees, if you have any
The U.S. Small business Administration offers a guideline for calculating your small business startup costs. It is a good idea to use this to get an estimate on how much you can expect to spend when starting up a business and maintaining it monthly.
Projecting your cash flow
New business owners should try to project their cash flow for at least the first year of operation. This helps to address what kind of fixed costs to expect and how to prepare for good months and bad months of revenue. You need to be prepared to live off your savings for a while.
Estimating your cash flow requires a lot of knowledge about your industry and your target audience. If you do not have an idea of what to expect from your audience and their response to your products or service, you might want to spend some time researching more before investing in a business startup.
Creating a financial plan with your business in mind
Starting a new business without a financial plan is like walking around your home in the dark. You might have an idea of where certain objects and obstacles are, but without the light, you are likely to stumble into something. A financial plan is your light in a dark room.
A financial plan for new business owners can take into consideration your short-term and long-term goals to help you maintain financial security while you get to focus your efforts on the success of your business.
The CERTIFIED FINANCIAL PLANNER™ professionals at ProVise Management Group believe that each client is unique and deserves a plan tailored to their needs. We take the time to get to know you, your current circumstances, your goals, your values and your risk tolerance to help you make decisions on how to start and operate your business.
We can create a personalized plan for you at a fiduciary standard of care. We also offer an unconditional money-back guarantee if you are unhappy with your written plan. Simply return it to us and we will refund 100% of the fee paid.
Are you ready to start your business with the help of a ProVise financial advisor? Contact ProVise today to schedule a complimentary consultation.