Every day there are thousands of people who come up with great business ideas. But only a handful ever get started. Why? Because only a handful of people in the world have the determination to overcome the most frustrating part of entrepreneurship: coming up with seed money.
Forget banks. They’re not interested in sticking their necks out to back a new idea, no matter how promising it might be. They know that four out of five small business fail within five years. Banks can do more comfortable things with their money, thank you very much. Later on, if you’re successful and have a track record, they’ll want to be your best friend and will come calling on you. Until then, they don’t to know you.
TURN TO FAMILY AND FRIENDS
If that’s not enough, you need to cast a critical eye on your relatives and friends. Perhaps you have an inheritance awiting you and can ask your parents for an advance. Your brothers and sisters may be willing to make a modest investment in the business. If you have well-to-do acquaintances who are in business for themselves, ask them if they’d be interested in investing. After all, as small businesspeople themselves, they’ll be more comfortable with the risky nature of start-ups. If you can convince them that your idea is a solid one, they may well be interested in getting involved. Just keep in mind that rather than just giving you a loan, they may want a peice of the business in return. At that point you’ve taken on a partner, not a financier.
But let’s not get ahead of ourselves. Before you start going out hat in hand to look for seed money, you need to prepare a business plan. It will determine how much money you need. This will include money to lease and furnish a location, purchase equipment and inventory, and pay for advertising and marketing. You’ll also need to pay for fees and licenses. Next, you need to calculate how much money you’ll need to cover operating costs until the business reaches the break-even point. This includes your salary, so don’t be conservative in your estimate. I advise clients to enter into business assuming they won’t have a single customer for a year. That means they should have a year’s worth of operating revenue in their account when they open their doors or business. Having such a cushion provides peace of mind. It also keeps food on the table and a roof over your head.