If you’re planning to open a new business this year, you can give your business a better chance for success if you spend adequate time planning and preparing before diving right in. Perhaps the biggest question for many budding business owners is how much money they should invest in their entrepreneurship, especially when a lot of that money has to be borrowed.
Like most monetary decisions, there are myriad calculators out there that will tell you down to the last pennyshould go to each portion of your business. Also like most monetary decisions, an infinite number of variables can influence the exact dollar amount your new venture will need. For example, the amount and quality of restaurant supplies you would need for a corner café will be quite different than the amount you would need for an elegant uptown establishment. So, how do you decide how much money to borrow?
First, focus on the realities and not the vision, at least temporarily. Many entrepreneurs dream about owning their own businesses, but dreams aren’t the same as truths. The facts are that at least two out of every three startups fail within the first year. One primary key to achieving the goal of owning a thriving company is developing a realistically written business plan.
The plan must cover some basic items:
- Cash on hand
- Operational expenses
- Revenue projections
- Marketing strategies
- Contingency plans
Since the first three years offer the most risk, be sure your plan covers a minimum of three years. A five-year plan is even better; many banks require a longer plan for loan consideration. Funding for the first three years is optimal. Funding can include the cash you have, loans and reasonable revenue projections.
Ask lots of questions and include the answers in your plan.
- Will you rent or purchase the property for your business?
- What type of insurance will you need?
- Are there EPA requirements?
- What kinds of zoning requirements are there?
- What location is best?
Consult with your local municipal zoning office for information about licensing, occupancy limitations, health codes, EPA codes and other property governances. Consider your target customers. Do you want to be on a transit route, in the suburbs or in the heart of the city? Thinking about that restaurant mentioned earlier, realize that a large building in a trendy New York district could cost upwards of $500,000, whereas a smaller location a few miles away could be closer to $120,000.
Even if you are experienced in an industry and already have a limited following, you can benefit from the expertise of professionals in your field.
If you’re opening a new restaurant, visit sites like Food Service Warehouse. This site has some fantastic articles about restaurant equipment and some of the most important considerations necessary before you open a new eatery. Keep in mind that equipment isn’t needed just in the kitchen for that restaurant—you need furniture, decorations, storage bins, cash registers and other foundational pieces of inventory.
Both under-borrowing and over-borrowing can undermine your business success. If you don’t have a strong background in accounting and business management, make an appointment with a financial business consultant.
- Take as much information as you can to your meeting.
- Ask for recommendations about how much to borrow.
- Ask for strategies for improving your loan chances and negotiating interest rates.
Owning your business can be very rewarding. Research and planning will help you get on the road to success. Working with a financial consultant to develop your business plan is beneficial, especially for determining how much to borrow.