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Financial Requirements

All businesses differ, and there is no single rule of thumb as to how much money you will need to start a business. The bookstores are filled with guides for starting retail stores and other businesses. We’ll cover some low investment business ideas later in this chapter. The best books will give you two critical guidelines for starting a business that will succeed.

Enough Money. The first is to be properly capitalized. Start out with enough money to keep the business going through hard times, until you develop customers, work out all procedures and make the adjustments necessary for your business success. Lack of enough money to keep the business going in the early years is the number one cause of business failure in America. With proper capitalization, you have room for maneuver, even room to make some mistakes. Without it, the first mistake might kill you.

Cover Living Expenses. The second, which relates to the first, is to have enough money to live on so you won’t have to take critically needed money out of the business. A business needs lots of cash because you never know when something is going to go wrong. Sooner or later something will go wrong. The key is to manage money as if you were always in lean times. The temptation is great to spend the money when its starts coming in. The best thing to do with the money is to keep it in the business, ready when you need it.

Survive! The first business goal is survival. Profit is secondary. With long term survival you get long term profit. Cash ensures survival. Many a business has made phenomenal early profits, only to fizzle and die because there wasn’t enough ready cash to meet obligations. If a business starts out well, you have to be very careful not to become too optimistic and spend all the money.

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