Starting a Business

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- my new business. Starting one is a multi-step process. The first step is to make a realistic assessment of your readiness to do so. The last blog suggested assessing your knowledge base. Do you know what you need to know?

Assessing your readiness.

The second question a nascent business person must answer is:  Do I have the wherewithal to get the business going and keep it going until it meets my financial goals?

All most all new businesses  need capital to get going. Some less, some more. Money for all sorts of things.
Here is a list for you to think about- some may not apply to your situation but many will: land, buildings, leasehold improvements, equipment, furniture, fixtures, vehicles, other tangible assets, pre-opening wages, prepaid insurance, inventory, accounts receivable, organizational expenses, rent deposits, utility deposits, supplies, licenses, advertising collateral, web site design, other intangible assets and some cash in the till. Rare is the small business that will find an investor or bank that will put up the money to finance all of this.  Most of the money will have to come out of your own pocket. Do you have enough or even any? If not, you will have to defer your plan until you have enough put aside.

Once you get the doors open another need for cash arises. It may be some time before the  business is self sufficient. Vendors and employees must be paid even if the business is not generating enough cash flow to cover the cost. If you were lucky enough to qualify for a bank loan, you must keep up with the payments on it or the bank will call the note and drive you into bankruptcy court.  Your landlord will be knocking on the front door if he does not get his check. You will need some working capital to cover these expenses until the business can pay its own bills. Then there is the home front.  It is quite common that the owner of a new business is the last one to be paid for many months. Your mortgage or rent payment will not go away. Nor will grocery bills, auto expenses or new shoes for the baby.  If your pockets are emptied out with start-up expenses, you will be in trouble from the get go. You need to set aside cash or have another income to cover your personal expenses until you can draw money from the business.

If you do not have enough money of your own, cannot find an investor and a bank will not loan you money just because you promise you will pay it back, what will you do? Well, the traditional way is to borrow against an asset. What asset? A home. Hard to do if you are like this poor homeowner. You need to look at whether or not you have equity in your home, and decide whether or not you are willing to borrow against it to start a business. A risky proposition.  Risk will be the topic of m my next blog.