What does it really take to start a business? Small business owner counselors speak with clients regularly on this topic. To successfully start a business and get lenders interested, an injection of “startup equity” is required.
Startup equity is defined as the total value of cash and assets an owner brings into a new venture. Lenders will typically require a 30 percent injection before they will commit to providing startup funding. This initial amount also tells the lender something about the business owner: that they have a certain level of fiscal responsibility that will translate to the ups and downs and unknowns of running a business.
But how do you get there? How do you get to a position of being able to offer a strong startup equity position? There are several steps to take and ways you can save money that will help you reach this position and help your business hit the ground running.
Analyze Every Dollar Spent on a Monthly Basis
Creating a financial plan requires a thorough analysis of what is being spent on a monthly basis right now. What are your current expenses? Which spending habits are needs, and which ones simply want? Where does your debt currently sit? Whether it’s a student loan debt, a personal loan, or something in between, you need to account for it.
Slash Spending and Eliminate Debt
Once you know where your finances sit right now, you can create a realistic savings plan for business funds. You’ll need to work on getting rid of debt first and foremost. You’ll also need to slash your discretionary spending – and put that money towards your debts. Less eating out, online shopping and coffee trips can help you put more money on debts and pay them off more quickly than you might realize.
Focus on Your Savings Account First
Once you have your expenditures under control or eliminated, you can then take that “extra” money and set it aside in a savings account. It can also help to set up automatic deductions to make sure cash goes into your savings first each month before anything else happens or distracts you.
Create, Follow and Manage a Budget
Budgets take a lot of work and attention at first, but once you have one in place, you’ll probably wonder how you lived without one. With all of the small details ironed out, you can create a budget that helps you track where your money is going and see how you can better manage it.
These are just a few ideas and ways you can save money. The secret is to create a plan that works best for you. With your money management on the right track, you’ll be in a good position to start that new business when the opportunity comes along.
Michael Hollis is a Detroit native who has helped hundreds of business owners with their merchant cash advance broker solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.
