I’m a fairly active blogger and much of the stuff I write can be found right here on Hot Sauce. This is the first time I’ve ever written a title before I wrote the piece, but I did it this time. Know what? This title is a lie. I wrote the title to attract attention because I think it is something that every entrepreneur ought to read.
We hear weekly from people who want to start a restaurant, retail shop, e-commerce website, or some other seemingly “simple” business. They have what they think is a unique concept and they are seeking help getting it launched. Unfortunately, in many instances, they have no money, very little money, or money that they should not be spending on a high risk enterprise.
I am here to tell you that you might be able to start a hobby with no capital, but you cannot start a business that will provide an income and a return on investment for you and your family if you don’t have some of your own capital to invest.
Some budding entrepreneurs think that if they can only get a business plan written, then an investor will provide the rest of the capital. This might be true if the investor is your rich uncle, but most real investors are anticipating a return of their capital along with a risk adjusted ROI, and will want to see that you are a little further along.
Even if your first investor is a family member, you still need to finance some preliminaries yourself. For example, say you write a business plan and present it to your rich uncle and he agrees to provide a certain level of start-up capital. Where will you put the capital? You don’t have a bank account for the new venture because you haven’t incorporated the business and that must be done before you open the bank account. And, writing the check to you personally can provide some tax and legal issues down the road that neither of you will want to face.
Here are some of the things you must budget for before you can get that first paying customer. Mind you, they may not all apply to you, but many of them will:
- Company formation – corporation or LLC. Even if you do it yourself by completing and filing your company documents through an online service such as LegalZoom.com or MyCorporation.com, there are still filing fees associated with the state in which you intend to incorporate or organize.
- Logo – this is how you begin to build your brand.
- Rent deposit – retail shops and restaurants require commercial space.
- Utility deposits – heat, light, telephones, internet connection.
- Website – Do you know a business that doesn’t have one?
- Business Plan – even the cheap ones cost money and writing the business plan yourself is usually not a winning solution (or at least not always the best use of your time).
- Inventory – raw materials, etc., that you will turn into something that a customer wants to buy.
- Equipment – computers, production equipment, pizza ovens, store racks.
- Working capital – keeping the business going in the early days, weeks, and months until you have enough customers to generate positive cash flow.
Businesses that make money and support families are rarely started on a shoe string budget. My suggestion is do not try to be the exception. You are more than likely not that lucky or that clever. Gather your resources. Build up that bank account and then go be a big success. The real truth is you can’t start a real business with no money.