Being your own boss is an intoxicating idea, but the reality can be sobering. Even if you don’t mind working on your business 24/7 and eating Ramen noodles when cash is low, you still must swallow the fact that it’s a big risk. About half of all new businesses fail within five years, federal statistics show.
If you’re sure you can be the next Oprah Winfrey or Martha Stewart and your passion can carry you through, don’t give up on your dream. Instead, reduce the risk by getting educated about managing money. Why is this so important? A lack of working capital is a top reason for business failure, and it usually points to problems with money management.
Technology has reduced some initial costs of starting a business, such as forgoing traditional office space for a table at a local coffee shop. Many entrepreneurship courses teach students to start a business on a shoestring budget, saving cash to deal with the volatile beginning phases. Women-led businesses also should take note of various incentives, loans and grants offered by federal, state and local governments to stay on budget. By obtaining certification as a Women Business Enterprise, which requires women to control 51% of the firm’s operations, you make your firm all the more attractive to government purchasing agencies that have tax incentives to hire you.
Those interested in franchising are going to be paying a large chunk of money to get started. Most franchises cost somewhere in the six figures to get off the ground. Compare that with $65,000, the average cost of starting a small business from scratch, according to a Babson College report. Either way you choose, you’re likely going to need financing.
To get your business off to the right start, it’s best to secure capital well beforehand. You don’t want to add scrounging for money to your day-to-day challenges. There are several sources to consider, including a loan through the Small Business Administration, selling assets, taking out new lines of credit, borrowing against your house or taking a loan from a family member.
Once you’re operating and can show that your company has value, you’re ready to seek funding from investors for growth opportunities. Showing an investor that you’ve managed money well during the startup phase can go a long way in winning them over.
Before you start your venture, take inventory of your skills and create a plan for managing any weak spots. Taking free online courses in accounting or marketing might help – edX.org and Saylor.org have business courses to choose from. You’ll also want to create a network of experts whose counsel you can rely on.
In areas such as tax planning, retirement savings and insurance, your financial advisor can offer guidance and support, keeping your business goals aligned with your personal ones. Your advisor also can help with contingency planning for your business, putting measures in place to maintain operations in the event of the unthinkable.
Starting your own business can be both risky and rewarding. With the right financial knowledge, determination, a great idea and perhaps a pinch of luck, you can enjoy the satisfaction and flexibility of taking control of your success.