Biggest Mistake for Entrepreneurs: Underestimating Startup Costs
Every business requires cash for startup. Entrepreneurs, and particularly women entrepreneurs, often underestimate what it will cost to get the business launched. Since the business is new, credit will be unavailable unless guaranteed by the owner/entrepreneur.
Writing a business plan maps out how much cash is needed, when it is needed and how long it will take for the business to generate income to cover the startup costs.
Early attempts at bootstrapping the business due to a lack, or access, of capital generally result in an early demise. Businesses need investment, like people need food, to begin with all the appropriate ingredients to grow healthy.
For example, many businesses can be started successfully out of a home office. If these companies require meeting space there are executive office suite spaces available for daily or hourly rent that are appropriate and, often even more convenient for client meetings. Of course, if the business requires employee interaction it is important for the entrepreneur to investigate local zoning regulations for home-based businesses before launching and expecting employees to work at her home. These regulations vary widely.
Attempting to launch a business online because you don't have the adequate investment for space is never a good idea. The requirements for building a successful online business are very different than those for a bricks and mortar establishment. Location location location is still key for any retail operation. Finding the appropriate space to lease is a priority and the startup expenses for this are paramount to your success.
Many entrepreneurs neglect to include the expense for early entertainment and or networking of both clients and vendors. Entrepreneurs must think about the costs that go along with joining the local chamber, or business/industry group and wining and dining potential clients. Once you are ready to launch your business you'll need paying customers ready to purchase what you are offering so you can begin generating income to offset your expenses.
Here are the expenses most overlooked by entrepreneurs:
Deposits: phones, rent, utilities, marketing, advertising (Most vendors require deposits for new businesses)
Buildout: space accommodations not covered by the landlord. Furniture (you'll get excited and want it to look better than consigment or used)
Entertainment: networking for business, membership dues, clubs, events
Postage: getting the word out (not recommending direct mail, but you will be mailing something you didn't plan for)
Transportation: parking, tolls, gas, repairs, fines/tickets (You are going places you haven't been before - it always costs more than you plan)
Legal: Your lawyer will charge you ever time you call to say hello
Food: You won't eat at home for a long time - eating out, even on the cheap adds up.
Clothing & Dry Cleaning: You'll want to look good and you won't have time for doing laundry.
Repairs: Murphy's Law - if it's new it will brake - including technology.
These are just some of the expenses entrepreneurs forget to include as they prepare to launch their business. You won't forget to include salaries, marketing materials, website, inventory, accounting, office supplies, rent and capital expenditures - these are the big items that scream startup.
Every entrepreneur knows that it costs money to start a business. Most invest their own money and supplement with that of friends and family. But before raising this investment, every entrepreneur MUST estimate the required startup costs. Hopefully this BLOG will help YOU in not making the biggest mistake too many entrepreneurs make - underestimating the startup costs.
Finally, once you have an accurate investment need success will only follow if you can adequately plan for how long it will take you to make enough profit to get to cash positive. Don't launch until you can answer that question.
Vicki speaks on women's entrepreneurship and leadership.