Decide how much money you need to start

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Many new businesses need start-up capital. Find out the main options of raising funding for your new business.

How much money do you need to start?

Before you start a business, it’s best to know how much money it will cost and make sure you have access to sufficient capital. It’s important to be realistic with all of your figures, and to estimate costs and revenue as accurately as possible so you can calculate how much you need.

How much money do you need?

Estimating your start-up costs falls into two categories:
  1. Set-up costs (money you’ll need before you start operating).
  2. Initial working capital (money you’ll need to run the business until you start making a profit).

Set-up costs

These are one-off costs that you will need to pay before you start operations. Every business will have different set-up costs to consider depending on the industry.
  • A web designer would have low costs: a computer, software, possibly liability insurance and any legal costs setting up a company.
  • A builder would have higher costs: tools, vehicle, and equipment for any specialized work.
  • A restaurant’s set-up costs may include kitchen equipment, seating and initial food ingredients.
Other start-up costs might include:
  • Rent deposits and any building renovations before you open for business.
  • Licenses and permits.
  • Employee recruitment and training.
  • Initial inventory or raw materials.
  • Signage, marketing materials, web site development and advertising.
If you're buying a business (including a franchise), the purchase price becomes your set-up costs figure, as usually all these start-up costs are included.

Working capital

Once they open, many businesses don’t have enough sales revenue to cover overhead costs. Time is needed to start and generate customers to cover all the overhead (and make a profit). Until this happens you’ll ideally have spare cash in the bank (also called “working capital”), to pay for monthly expenses until sales can cover all your monthly costs.

Work this out:

  • Begin by estimating your monthly costs (wages, utilities, internet, advertising, rent – everything). This will give you a monthly amount you need as a minimum to stay in business.
  • Transfer these totals to a cash-flow template.
  • Now add your sales estimates for the first six months (being realistic and remember some businesses don’t have any sales initially). Each month you’ll see how much working capital you are short.
  • If you have customers on credit or account, they rarely pay on time. Factor into your calculations that you may need to wait 30, 60 or 90 days for payment.

Cost out every item and get quotes

You can get accurate figures for set-up costs and working capital expenses by rolling up your sleeves and carefully researching all costs.

  • Get written quotes from suppliers for each service or product you need to run your business. Ask them to guarantee the quoted price for at least 90 days; that way, you won’t have any surprises when you go to start-up your business.
  • If you are leasing or buying premises and must pay for utilities, contact the utility company to find out the monthly cost. Ask about any anticipated rate changes.
  • Research online or contact vendors directly to identify costs for office supplies, internet access, telephone charges, furniture, alarm systems, data storage and office cleaning.
  • Include any transportation or travel costs you may incur to get your business going.

Contingency budget

It can be difficult to foresee all the costs you will incur to get your business up and running. Inevitably, there will be some costs that you didn’t expect, or purchases that simply end up costing more money than your earlier estimate. Costs can also change if there is a substantial period between when you priced something out and when you buy it – an insurance rate obtained last year may be much higher this year because of changes in the marketplace.

You can accommodate changes to your start-up budget by including a contingency budget. Consider adding ten to twenty percent or more to your start-up budget for unexpected set-up expenses or changes to your working capital needs.

Start-up budget formula

Use this formula to safely calculate the amount of money you’ll need to start your business:

  • Set-up costs + working capital costs (monthly costs x the number of months you’ll be short) + a contingency budget.
  • Example: Start-up costs $200,000 + working capital $120,000 ($20,000/month x 6 months) = $320,000 to start and cover costs for 6 months. Add a 10% contingency to be safe which totals $352,000.

Take this total and calculate where this will come from:

  • Personal savings.
  • Bank finance.
  • Investors.
  • Government grants.
  • Loan from friends or family.


Work out exactly how much you think you’ll need to start, with a realistic contingency to cover any cost blow outs. Remember to make a plan to pay for your personal living expenses while your business gets off the ground because if it won’t be able to pay you a salary initially. Figure out your household expenses to know exactly how much you’ll need each month.

You may have all the cash you need for starting a business. If not, then carefully consider all the options available to secure start-up funds.

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