New business planning will drive a smooth

Starting a business takes a realistic assessment of expenses, planning assets,

 and most importantly, funding requirements. The second leading cause of

small business failure is from under capitalization. (The leading cause is

mismanaged growth). Capitalizing your new business means overcoming the high

up front startup costs, and making sure that you have enough money in reserve

to handle operating expenses for a few months while building your client base

or bringing your service or product to the market. Nothing is as

disheartening as seeing that your business has failed when it could have

succeeded with a bit more money at the right time.

To figure out your capitalization requirements, you’re going to need to

itemize your start-up costs, like paying for office and work space, warehouse

space if you need it, and initial capital investments in equipment, tools and

furnishings, plus service fees (attorney time, licensing fees and state

permits). You’ll also need to start the basic utilities - internet, telephone,

 trash pickup, electricity and water. When you start adding it all up, it can

become more than a little daunting.

However, you don’t need to do it all at once. Make a priority list. Can you

work out of a spare room in your home, or use your garage as your small

warehouse? If the type of business lets you do this, then you can postpone a

large chunk of continuing overhead expenses by doing exactly that. If you’re

providing an online service business (marketing assistance, freelance writing,

 and the like), you may never need to get “real” office space, though there

are some serious benefits to doing so. (Not being interrupted by your family

during business hours is the least of them!)

Another way to overcome a shortage of capital is sweat equity. When you’re

starting a business, the most plentiful commodity you have is your back and

sweat, and doing things for yourself. It’s easy to get into a rut with this,

so be sure that you’re valuing your time appropriately - remember that the

leading cause of business failure is mismanaged growth: Getting into the

habit of doing everything yourself, when hiring an employee to free you up to

do business management is one of the classic failure patterns. Doing things

yourself will give you a gut appreciation of where the money goes, and what

jobs you’ll want to delegate in the future. It’ll also give you a leg up,

when you have employees, to know what all the jobs are, and how to train

people to do them to your satisfaction.
 
Keep an open mind during the business planning phase. Network and talk to

other small business owners, and make a habit of going to your local SBDC

luncheons every month. Learn from the people who are going through what you

went through, or have gone through it before. There will be lots of

suggestions on how to manage your business’ growth.

Finally, be aware of the differences between capital expenditures, sunk costs

and recurrent expenses. Or, when it’s time to spend money , don’t be afraid to

do it when the opportunity strikes!

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Tags: business marketing, business planning, capital investments, capitalization, equipment tools, initial capital, internet telephone, launch, office space, operating expenses, overhead expenses, realistic assessment, right time, service business, small business failure, spare room, startup costs, trash pickup, warehouse space, work space

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