Question from a reader:”Hey, Kim. Great blog. What is the absolute lowest I should lay out in cash to get my business going? I am starting my own business.”
My answer is congrats and you should start off with spending whatever is reasonable enough to get yourself going and insure that you have expenses covered for three months. I would say longer like two- three years but in this current economy I wouldn’t start up a business that would be a tough sell now even though eventually it might get better later on. Example? Yacht sales are supposedly great anytime because the rich always have money but let’s not kid ourselves. A lot of wealthy and rich people have had their portfolios decimated in the current economic climate or just aren’t going to drop millions on an extra yacht if the one they have is working fine. Make sense?
Also if you have enough cash saved up to last three years without work you should be taking your time and picking a business which isn’t going to cut deeper into your savings. A person is asking for trouble if they start burning through cash to try and keep a business afloat that is losing money faster than it can make it.
If you are trying to raise money, keep your costs realistic and as low to the ground as possible. Some investment bankers (if there are any still fronting cash) may have pie-in-the-sky ideas about returns on investment but low is the way to go. Think ghetto low.
You remember the fad a few years ago, right? When people would show “ghetto” chic and they would have very low cost or styling items and people would laugh ha-ha but the thought and sentiment applies to start up costs these days. For now, if you can cover your expenses while you are getting started and actually make a living, you are not only doing well you are doing great.
People at first were giving me crap when I started my publishing company. I am not getting rich off of it but as anybody who has any business sense will tell you – any income stream, if you are making money after expenses and taxes have been paid and it isn’t killing you physically, mentally or emotionally is a good income stream.
That leads me to the next point in keeping costs low. Keep your cost of business in processing money low. If you need to accept cash, great. If you need to take credit card or debit card payments, think about low cost alternatives like paypal where you don’t need to deal with the hassle about processing credit cards. If you have a store front for your business, that is a different story.
Like my metal box as a cash register when I first started working swap meets selling comics and collectibles, look for ways to keep expenses low. The IRS also treats you more like a business because you aren’t wasting money on things you don’t need and keep it looking like a hobby instead of a way to make it a professional gig.
A rule of thumb would be to always start working backwards when it comes to deciding if you have enough for business. I always ask myself prior to any business deal, what do I want to make? How much can I make? What do I need to do to get the income stream that I want?
So, for starters sake, how much money do you need to net a month to meet your minimum monthly living expenses? A thousand bucks a month? Two – four thousand? You need to figure it out and then reverse engineer back as to how much do you need to sell, or what do you need to produce to get that particular kind of money.
You also don’t want to sacrifice function for cost. If you need to get a certain tool or piece of equipment, don’t skimp. On the other hand you should always be asking yourself if you can find a more cost effective way of getting what you want done without hurting your production.
That is pretty much it. If you are selling something that has flash and sizzle – like iPod stuff, image is everything and you can’t get around it, even if you are selling knock-off technology. You can’t get away selling craptech. People have a high standard of what they want to see when they buy a product.
On the other hand if you are selling home made pies, you don’t care what your kitchen looks like (well, you should for any health inspectors) as long as the pies are presentable and of course, super delicious. There are a lot of bakers and cooks out there these days and keep in mind that people are fussier with what they are eating healthwise.
I hope my answer helped and keep us posted as to how you decide to make out with your business. If you also need any tax advice, lemme know. My rates are very reasonable.
Have a great day people. Where did July 2009 go? It seems like the month just started, er, 29 days ago.
July 29 2009
Also, please don’t quite go anywhere yet. Having some tax issues or tax questions? Any problems with trying to make it through the financial Depression we are in that is making you depressed? Please read on.
I am expanding my practice and taking on new tax clients. If you are interested in having somebody who is a successful businessman and tax professional with integrity review your returns discretely and see if your tax guy or gal is doing a good or goofy job, please drop me an email or post a comment with your contact information and time.
I have experience in international business, small businesses, partnerships, multi-state tax returns (they can get complicated) and anything else you can probably think of.
I also do business consulting and have ran several businesses (still running a few) myself so you are in good hands.
If you are looking for a day job, part time work, suggestions for saving money or investing, please check out my book, Practical Money Making, that is listed right after his paragraph in this very post. There are some great suggestions and ways to survive the Depression we are in.
Interested in any of my books? You may want to make a stop over here. Please click through to purchase my books and some other interesting items that actually ARE on sale.
Have you read my book, “Bad Tax Idea, Good Tax Idea“? Please order it today. The tips inside can save you hundreds if not thousands of dollars! Tax planning should be done year round and not just two weeks into January or later.
Part of all the proceeds from the sales of that book go to Rett Syndrome research. One girl is born with Rett Syndrome worldwide every fifteen minutes. My daughter Arianna has Rett.
Kim Isaac Greenblatt
Keep Start Up Costs Ghetto Low