How much money will you need to go into business for yourself? That depends on a whole decision-tree full of variables about your plans. There’s no magic number, of course, and initial startup costs for some businesses are vastly steeper than for others. All budding businesses have one spending goal in common: to minimize startup expenditures without giving the appearance that you’re launching your business on the cheap. That can be a difficult needle to thread.
So before you even start thinking of potential capital sources, think first about nailing down some fundamentals. Answer some basic questions about your business concept and the environment you’ll be operating in. Your answers can help point you toward the next steps you’ll need to take.
What are you selling?
If it’s a service, you’ve already paid to acquire the expertise needed to deliver for your customers. Sunk costs include your education and your years gaining skills and contacts up to this point. You’ll also need to consider operational costs like office rental, employee salaries and benefits, marketing and sales. You can defer many of these expenses while you ramp up—by working from home and wearing multiple hats until you can afford to hire staff.
If you’re selling a product, you’ll need to add in the costs associated with producing or acquiring inventory. That could include manufacturing equipment (unless you’re reselling finished goods), sourcing, storage, packaging, shipping and more.
Can you fly solo?
A sole proprietorship, an especially useful structure for startup service businesses, can give you flexibility up to a point. There are fewer variables to control, and you don’t need to invest in hiring, managing and paying for workers. But it also limits your growth.
If your business is even moderately successful, at some point you’ll need to think about bringing on a partner, employee or contract worker to share your workload. Many business owners ease into this conundrum by starting with freelance help. Before you hire an accountant, for example, you could start with a bookkeeper who comes in for a few hours a week. Instead of a full-time salesperson, you might do better initially by looking for a business development contractor. In today’s gig economy, freelancer clearinghouses, which specialize in connecting businesses with contractors, are thriving. For product-based businesses, the need for extra people comes pretty early in the launch process–even if you’re retailing finished merchandise.
Where are you based?
A parking space in Manhattan or San Francisco rents for more than a three-room office suite in less flashy locations. So, the location where you base your business will factor into your startup costs in a major way. Even for a one-person service business based in your dining room, essential vendor services can still cost more in trendy metro areas than in smaller cities. Should you move to cut costs? Not necessarily. Some businesses thrive with no significant infrastructure beyond a reliable internet connection. If you need a physical presence for your business, like a retail store, weigh the neighborhood foot traffic against the cost. Consider bartering as a way to reduce rental cost. If you need access to talented contractors, electronic communication platforms like Skype can broaden your reach beyond your physical location.
When will you launch?
Timing is a big factor in your success. Some business launches can be time-sensitive, depending on the industry and the calendar. If you’re launching a technology-based business that’s swiftly attracting competitors, for example, you’ll need to move nimbly. If you’re selling a product or service that has seasonal fluctuations in demand, you should time your launch accordingly—giving yourself time to optimize in time for peak season.
On the other hand, if your startup is not particularly time sensitive, plan your launch for minimal disruption of your own income. If you’re employed, a good rule of thumb is to stay put, collecting salary and benefits, while you pursue your new business on the side. In this scenario, a good time to pull the trigger is when your biggest growth-limiting factor becomes your day job.
With fundamentals like these squared away, you’ll have an easier time focusing on what your startup experience—and capital needs—will look like. Pango Financial can help you create a financing package that leverages your strengths and sets you up for success. Contact us at
1-855-WHY-PANGO (1-855-949-7264) to learn more.