The startup costs will obviously vary from industry to industry, so your company may require more or less funding depending on the situation.
For a small, part-time startup with no equipment, employee salaries, or overhead to worry about, it may only cost you less than $10,000.
Other ventures may cost millions.
What’s the primary source of this funding?
Roughly 565,000 startup companies launch in the United States every month.
On average, these businesses raise $78,406.
Based on the graphic above, the vast majority of this money comes out of the entrepreneurs’ pockets.
The cost of doing business is much higher than people initially think.
Let’s circle back to our business plan for a minute.
All business plans contain a financial plan. This plan usually includes:
- Balance sheet
- Sales forecast
- Profit and loss statement
- Cash-flow statement
82% of businesses fail due to cash-flow problems.
You’ll use these financial statements to determine how much funding you need to raise in order to get started.
You may discover that the number is significantly higher than you originally anticipated.
For example, I’m sure you’ve heard someone say, “That would make a great app,” or “I should make an app for this.”
Do you know how much it costs to make a mobile application?
Even if you start a small app shop with only a few people, it’s likely going to cost you anywhere from $50,000 to $100,000.
And that’s just to make it.
It doesn’t include the cost of running it or customer acquisition costs.
The point I’m making is this – in order to secure the appropriate funding, you need to find out how much money you need to raise.
To find this number, you need to research and predict realistic financials in your business plan.
Let’s say you discover that your startup needs $100,000 to get off the ground.
What if you don’t have $100,000?
Don’t worry – your dream isn’t dead yet.
You’ve got some options, but you want to weigh them all cautiously to avoid paying massive interest rates.
22% of business loans go to small businesses. The vast majority of business loans are for large companies that are already established.
There’s a reason why this number is so low.
Banks are less likely to give large amounts of money to new companies with no income or assets to default on.
That’s why bank funding was second to last on the funding sources graphic that we referenced and discussed earlier.
So if you can’t get money from a bank, or if you can only find a bank that’s offering you an outrageous interest rate, what other options do you have?
Investors can be:
- Angel investors
- Venture capitalists
Proceed carefully because you don’t want to start giving away significant equity in your company before you even get started.
The type of business you’re starting also influences the likelihood that angel investors and venture capitalists will be willing to give you funding.
Over half of venture capitalist money in the United States is invested in software and technology.
It may not be easy to find venture capitalists if you’re not in a certain area.
What do I mean by this?
This graphic explains how your location can make a difference.
If you find a potential investor, you need to know how to pitch your idea quickly and effectively.
You need to have your financial numbers memorized forwards and backward.
Refer to your business plan.
Make sure it’s presentable so you can give them a copy, but you also need to know how to successfully verbalize your startup strategy.
It’s imperative that your business plan has a proper executive summary.
Investors are busy and may not take the time to read through your entire plan if the executive summary doesn’t give them a reason to move forward.
Once you secure the appropriate funding, you can proceed to the next step of launching your startup company.