Raising The Cash To Start Your Business

How much do you need?

The amount of cash that you need will of course depend on the type of business that you are planning to start. A business providing a service will usually require less money than a manufacturing business.

Whatever type of business you are planning there are a number of items that you will need cash for.

If you buy an existing business:-

The business plus Goodwill

Existing stock (this is usually valued on the day you take control of the business).

Legal Fees - fees for buying the business and transferring the ownership to you.

If you start a new business:-

Premises - renting, leasing or buying a place to run your business from. Depending on the type of business, you may be able to run it from a room in your house.

Equipment - renting, leasing or buying the equipment you need such as manufacturing equipment, workbenches, office equipment, cars, vans etc.

Materials and stock - buying the initial raw materials or stock that you need, though you may be able to get some of this on credit from your suppliers.

Advisors Fees - lawyers, accountants etc.

Running costs - you need working capital to pay for services such as electricity and telephones. Materials and stock need to be replaced when you use them up. Plus salaries for your staff etc.

Living Costs - until your business starts earning enough money to support you and your family.

Safety Reserve - you need a reserve of cash as when running a business there will always be extra expenses that you have not foreseen.

Where can you get the cash from?

Savings - this is the preferred option for most people as you are using your own money so you have to spend less time trying to organise the finance of your business.

Private loans - a member of your family or a close friend may wish to give you a loan to help you get started. Though you need a proper agreement about the loan - how long the loan is for and do you pay interest on it.

Bank loans - to get a loan from a bank you will need to convince the bank manager that you have a sound business plan and that you are capable of making the business a success. It will also help convince the manager if you are also investing your own money in the business. You may have to put up your house as security for the loan.

Overdraft - these are only for short term use, for example to help your cash flow when your first startup as there is likely to be a delay between you starting up and getting money coming into your business.

Re-mortgage - a popular way to finance a business is to re-mortgage your house, but remember if your business fails and you are unable to keep repaying your mortgage, you could lose your house.

Credit - depending on the type of business you are starting, you might be able to get machinery and materials or stock on credit from the suppliers. Normally you will need to sign a contract to buy their goods for a period of time - perhaps one or two years.

It is most likely that you will end up using a combination of two or more of these sources of cash.