Do you have enough money to start your business?

One of the most important aspects of business finance occurs long before your business is even open. Determining whether or not you have enough money to open your business is the first step in successfully managing your business finances. The question of whether you have enough money is not a simple yes or no answer but instead needs some serious consideration before you can answer it. If you take the time to go through the process and consider all aspects of this question you will be in much better shape financially when you do open your business. Here is what you need to know to answer the question- Do you have enough money to start your business?

- What kind of business do you want to open? The first thing to keep in mind that is that different types of businesses require different amounts of startup capital. There are some businesses that you can literally fund out of your pocket while there are many other types of businesses that may require thousands or even hundreds of thousands of dollars just to get started. This is especially true if you are going to need equipment or lots of inventory in order to get your business open.
- What kind of financing are you going to do? There are basically two different types of financing that you can take on for your business. Most new business owners turn first to debt financing. Before taking on any debt financing it is crucial to take a look at your personal finances and determine how much you can personally invest in your business. Keep in mind that you should never invest money that you will need to live on while you are opening your business. Once you have decided how much you can invest in your business the next step is to turn to family and friends. However, you should make it clear whether you are asking for a loan (debt financing), or an investment (equity financing), to get your business up and going. While you will need to pay back a loan even if your business fails, with an investment your family and friends will take on the risk. Finally, you can approach lenders about gaining a business loan or line of credit for startup capital. Keep in mind that this can be a difficult task for a new and unproven business owner. Because of the tightening of the lending market many business owners have gone to venture capital firms and angel investors in order to gain equity financing for their business. The bottom line is that there are pros and cons for each option so you should consider each carefully before deciding what you will use.
- Do you have enough money to live on for at least a year? It is crucial to understand that most businesses are not profitable for many months even up to a year. Some businesses may take even longer then a year to show a profit. Because of this it is crucial that you have a backup plan as to how you are going to pay your bills while you build your business. Many new businesses owners are willing to invest everything they have into their new business and then find that they can't afford to pay their mortgage/rent, buy groceries, or pay any of their bills. This makes it crucial that you have a plan as to how you are going to pay your bills until you can draw a salary from your business. You may need to consider keeping a full time job or working a part time job until your business is profitable or saving at least a year's worth of expenses before devoting yourself to opening your business.