The Ultimate Question That Has No Clear Answer
How much do I need to start a small business?
Wouldn’t it be nice if you could just open up some sort of calculator or tool and say, “I need to start a retail business”, or “I need to start a food business”, or any kind of business, and then that calculator just does its magic and gives you the dollar figure in terms of how much money you need to start a small business?
That would be great!
But the truth is, no tools or calculators (other than a business plan) really exist that can do that for you and be accurate. Maybe estimated guesses, but nothing that you can say with 100% certainty: this is it, and that’s exactly how much you need to start your small business.
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You may be wondering why that is.
Well, every single business is unique in its own way. Every single business owner or entrepreneur is unique in their own way. This ultimately brings you to the realization that one entrepreneur from one city may possibly spend a lot more on startup costs than another entrepreneur from another city, for the exact same business. So how can a calculator guess this and give you an accurate dollar figure of how much money you need to start up?
They can’t.
But that’s not to say that trying to figure out how much money your small business may need to start up is a bad idea. You should. You need to figure out how much money you will need to start up, operate, and ensure success for your small business prior to starting.
So How Do You Do That?
A business plan is typically the best way to ensure that you cover every single aspect of your business on paper. A proper business plan will actually tell you what you need to ensure success and how much money you will need to make it happen. So if you don’t already have one, be sure to register and use our Business Plan Builder Tool.
Aside from deciding on what kind of business to open up, your first official step when starting your small business should be to create a business plan. As mentioned, a properly written business plan will guide you through the business startup process, outline the strengths and weaknesses you may have, and allow you to project and forecast financials.
This ultimately gives you a good idea of your startup costs, operating costs, and any costs that may be associated with your small business.
In other words, it will tell you how much capital you need to start a small business.
Before you delay any further, be sure to get in front of this and start writing your own business plan. If you don’t have the skills or experience to write one on your own, you can always use the Business Plan Builder Tool provided by Canada Startups to help you create a professional-looking business plan through a simple fill-in-the-blanks, step-by-step process.
Try the Business Plan Builder Tool once you register as a member.
What Are Some Costs You Will Need to Cover When Starting Your Own Small Business?
As a small business startup, everything costs money. When you start your business, you need to watch every penny to ensure proper planning and to avoid running out of capital.
Many small businesses fail due to a lack of funding, or because of improper allocation of funds.
You may see startup owners making fancy lounges for employees, purchasing brand new Mac computers for everyone, or buying expensive espresso machines. If funding is unlimited, this can be great for morale, but for most startups this is not an option. Improper allocation of limited funding can lead to failure.
When looking at how much cash you need to start a small business, you need to break it into two categories: one-time costs and ongoing costs.
One-Time Small Business Startup Costs
- Purchase price or down payment if purchasing a business
- Office furniture
- Computer hardware and software
- Setup, installation, and consulting fees
- Business cards and stationery
- Decorating and remodeling
- Fixtures, counters, equipment, and installation
- Starting inventory, raw materials, tools
- Deposits with public utilities
- Legal and other professional fees
- Business licenses and permits
- Advertising and promotion for opening
- Signage
- Rent and security deposit (often equal to three months’ rent)
- Operating cash
Ongoing Monthly Expenses (Potential)
- Salary of owner-manager
- Other salaries, wages, and commissions
- Payroll taxes or self-employment tax
- Rent
- Equipment lease payments
- Advertising (print, broadcast, and internet)
- Postage and shipping costs
- Supplies (ink, toner, labels, paper goods)
- Telephone
- Utilities
- Internet connection
- Website hosting and maintenance
- General business insurance
- Business vehicle insurance
- Interest and principal on loans and credit cards
- Inventory, raw materials, and parts
- Legal and other professional fees
- Franchise fee
- Miscellaneous
Here is a quick little tool that can also help you calculate some of these amounts.
As you can see, there are many costs associated with starting a small business. Some may not apply to all businesses, while others may be costs you hadn’t considered.
Missing a few costs may not break the bank, but when planning your budget to the dollar, these are the costs you need to know.
So, How Much Cash Do You Need to Start a Small Business?
Whether in Canada or anywhere in the world, the first step is to complete the above list and work on your business plan to determine an approximate figure.
Remember, it is better to have too much money than not enough when starting your small business.
Finding Startup Funding
There are many ways to obtain startup funding, including personal savings, friends and family, banks, private investors, and government funding programs.
If you are on a funding search, consider using our Small Business Funding Database. Members of Canada Startups gain access to over 1,500 funding programs, including government grants, loans, and private investors.
No matter the funding source, it is important to know your business inside and out. You must know how much money you need, how much you are investing personally, what you need to borrow for, and how borrowed funds will help your business succeed.
If you are asking a private investor for money, be prepared to show a business plan and clearly explain how their investment will help your business and how it can be returned.
Conclusion
It is very important to know how much money you need to start your small business. We hope this helps answer some of your questions. If you do not have enough capital, consider borrowing from the funding sources mentioned above and take advantage of the