You may be asking yourself, “How do I put together a plan to request a loan or investment if I don’t know how much money I need to start my new business?” Good news! You shouldn’t know the amount to request if you have not yet created your business plan and financial projections. If you enter the capital-raising process with a certain amount in mind, it is most likely an arbitrary number. Did someone tell you they needed “about $800,000” to launch their own sporting goods shop? Did you find an online source that says the average café needs $500,000 to get started? If so, these numbers might be a good starting point to consider. However, the odds that your business will have the same exact needs as another are slim to none.
If you take out too much capital to start your business, you are stuck with more debt and unnecessary interest charges. If you take out too little, you will not be able to operate and will have to start the process over. Before approaching potential investors or loan officers to raise capital for your new company, you need to create a comprehensive business plan that includes several years of financial projections. If you do not have a background in finance, it will be beneficial to enlist a professional to help you create these projections. That professional will be able to ask the right questions to determine what expenses you will incur and project what your sales might be based on data from your specific market. With your business plan in hand, you will have enough information to determine the amount of capital that is just right for you.
