the profit center is now purpose capital
If you’re an entrepreneur who is interested in starting a small business, it’s a good idea to ask yourself many questions so you can determine how to best proceed—not to mention succeed!
If you haven’t already, here are the top questions you should ask yourself: What products and/or services am I going to offer? Who is my target market, and how do I intend to reach them? What level of competition do I have within my industry? Approximately how much money do I need to start my business?
This blog post will address that last question, as I’d like to help you understand why it’s important to generate a number—even if it’s a ballpark figure—of how much money you’ll need to have in the bank in order to move forward with your idea.
Startup expenses can be defined as the amount of money required to transform your business from an idea in your head to a profitable venture that serves customers.
Startup expenses vary widely from business to business. If, for example, you are opening a brick-and-mortar coffee shop, you will need to account for a variety of startup expenses, including rent, electricity, espresso machines, coffee beans, seating, and other miscellaneous items. In addition, you’ll need to hire baristas, so you must also consider employee wages.
Startup expenses for an individual who has decided to launch a handmade jewelry line, on the other hand, will not be nearly as expensive, especially if this business owner is working inside her home studio, has no employees, and does not need to invest in lots of inventory.
All of this said, every entrepreneur should expect to incur startup expenses.
When it’s time to calculate your startup expenses, our team at Purpose Capital Group encourages you make a list, placing the most expensive and necessary items at the top.
It will be crucial to calculate the costs of all the necessary equipment and/or materials you’ll need. Do you, for instance, need any large equipment, and if so, will that equipment need to be financed so that you can purchase it now and pay for it later? How about software—do you need any for your computer?
While it might be tempting to try to cut a few corners (“Do I need this? Can I get away without having that?”) in order to save money, don’t cut so many that you risk not making a great first impression once you’re officially open for business. Back to that coffee shop example, if you will: cups will be a necessity, of course, and you could very well go with Styrofoam, but why not invest in beautiful (and reusable) mugs, or perhaps biodegradable cups? First impressions count, and it’s worthwhile to do your research within your target market to determine what matters most to your customers and what’s ultimately going to beckon them to support your coffee shop as opposed to the other ones around town.
Once you’ve got your inventory costs itemized, move on to your personnel needs. How much money do you intend to pay yourself? How many employees will you need, and how much would you like to pay them?
You may be able to operate your small business as a sole proprietorship, but this means that you’re not recognized as a separate business entity. A sole proprietorship is the simplest way to do business, but it’s also risky in that if a customer sues you, your personal and professional assets/liabilities are considered one and the same. For these and other reasons, you may wish to establish a limited liability corporation (LLC), or a corporation (there are a few different corporations, such as C, S, and B).
It’s possible to file all the necessary paperwork to start a small business all by yourself, but we recommend working with a licensed attorney. The peace of mind that you can gain from working with an attorney who has filed this type of paperwork before is well worth the cost. That same attorney can provide legal guidance moving forward, too.
In addition to hiring an attorney, you should also hire a reputable, trusted accountant to handle all of the financial details of your business (payroll, taxes, and more). Working with an accountant ensures that you’re keeping good tabs on your money—what’s coming in, what’s going out . . . over time, your accountant can gain more and more helpful insights into your finances, which your accountant can help you use to your advantage.
Some entrepreneurs are surprised to find that they also need to invest in business insurance. A proper insurance policy can protect your business and all your assets. Connect with an insurance agent to secure a quote; the agent will be able to write a policy for you that takes into consideration the unique risks and liabilities that your business faces (if you’re opening an auto repair shop, for example, the agent will need to evaluate your building, machinery, and more).
Marketing expenses include, but are not limited to: hiring a graphic designer to create an eye-catching logo; printing business cards and brochures; paying for website creation, maintenance, and hosting; investing in ads, including ads that appear on Google and popular social media sites such as Facebook and Instagram. You may even go so far as to put up a billboard, advertise in your local newspaper, and/or film a commercial. Marketing can get quite expensive, so, again, do your research. If you’re trying to sell a product to teenagers, for example, it would not behoove you to invest in a newspaper ad; instead, you’d look to all the popular social media platforms that teenagers use these days.
Starting a small business may seem overwhelming and intimidating, but it doesn’t have to be. Take one step at a time, and find people who can assist you along the way, including fellow entrepreneurs who have found success and want the same for you.
Don’t forget to apply for grants, too, because money you can secure from outside sources can help you fund your small business. For more information about how to raise money, check out our blog article, “7 Ways to Raise Money When Starting a Business.”
Our team at Purpose Capital Group wishes you the best of luck in starting your small business, as well as much success once it comes to fruition.
Purpose Capital is a strategic finance consulting firm that supports leaders of high-impact organizations effectively manage their financial resources.