Startup Cost – What’s it Take to Get Going?

by smallbizbee · 5 comments

A question I get all the time is, “What’s it cost to get up and running?” And in that phase of startup euphoria usually they don’t even wait for my response before following up with “Well, how much? Huh, give me a number…come on, I got a great idea I need to get on this now!” To which I reply, “It depends”…their face goes blank, they feel they’ve been cheated, what do I mean “it depends”, they just want a number so they can “GO GO GO!!!”

The unfortunate (or fortunate depending on how you look at it) truth is, it really does just depend. It depends on what kind of business you are starting, what your income expectations are from that business, and how (or if) your personal finances are in order. The cost to get going will be much different if you are starting “Fancy, Dancy Micro Chip Factory, LLC” than “Phil’s House of Hot Dogs”

What kind of business are you starting?

The nature of the business will drive much of the initial startup cost. If your business will require heavy machinery, high paid specialist (think Architect), buildings, or loads of inventory (retail) your startup cost are going to be exponentially higher than someone starting a small home based business, or someone providing a service such as consulting, web design, or income tax preparation. The latter is not necessarily better than the former just because it requires less capital up front, but initial expenses (and where that money will come from) should be carefully considered when trying to find the business that’s right for you.

What are your income expectations from the business?

Is your business going to be producing cash from day one (rare)?
Will you need some capital reserves to sustain your business, and personal expenses until it starts producing income (more likely)?
Do you have other sources of income (other job) that will help bridge the gap while you wait for your business to turn a profit?
When do you expect to see a profit?
How much profit?

All of the questions above will influence the amount of money you will need in order to get your business up and running. The answers to each will vary depending on your personal situation, the type of business you are running, the market you operate in, and your long-term projections for your business. The general rule of thumb is to have at least 3 months worth of money available to carry you and your business in the beginning.Put it this way, I have never seen a business start with too much money, or have too much money available to them in the startup phase. So three months is definitely the guideline instead of the rule.

Are your personal finances in order?

I’ve seen a lot of businesses fail because the owner’s personal finances are not in order. What could have been a successful venture gets bled dry because the owner expects too much in the way of spendable income from the business than it can sustain in the early phases. The more stable your personal financial situation is the less money you will need during the startup phase. If you will continue working your 9 to 5 job during the startup phase you can afford to have less in capital reserves than if you quit and go full time into the new venture.

Final Words

So you can see we’ve asked about 1,000 questions and have yet to provide a solid number as to what it cost to get going. Feel cheated? We hope not, because as you can see there is a multitude of considerations that will affect the cost associated with getting you up and running.