Budgets and Capitalization

You have a dream.  Your own business.  You understand how to run the day to day operations, how to market it, how to interact with and sell the customers.

It would be a shame if your dream never got off the ground because you did not understand the financial reality of making it all happen.  Yet that is what happens to the vast majority of start up businesses in this country every year.  They die in the womb.  Or from Sudden Instant Death Syndrome.

You know that you have started with an entity that limits your liability.  You have heard that you should never sign personally for a corporate debt.  But the reality is that unless you are going to give ownership of your company to a lender, no one is going to lend to your new corporation without your personal guarantee, and that guarantee has to be worth what you will be borrowing.  In order to succeed you will need the resources to sustain your business and yourself through the start up stages and into profitability.

Note that I included yourself in the equation.  Another important aspect is time.  Budget wise what is your business overhead going to be per month.  Add to that your personal overhead.  That is what you will need monthly to survive.  Now, how long will it take you to sell enough to break even against that total monthly overhead?  8 months?  One year?  Multiply your monthly overhead by the number of months required to break even and that is your capital requirement.

If you do not have clear access to your capital requirement, you may want to re-think your current entrepreneurial desires.

And, don’t forget to add contingencies for problems.  In the real world, if something can go wrong, it will.

In developing a budget, you have to know about all of the expenses.  Especially, the ones that the Federal, State and Local Governments will require you to spend.  Taxes.  Insurances.  Permits.  Ways you will have to comply to do business.  Even if you do not want to.

One response to “Budgets and Capitalization

  1. Very thoughtful Budgeting. Also curious of the author’s job. Are you running own business or an officer. If possible would you let me know please, because I am considering part time job at industry and another part time job at CPA office as CPA certificate holder?

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