Second opinion on starting your small business

So, the other day, I wrote about my first opinion on starting your own business, namely, being passionate about what you want to do.

Today, I'll let you know what I believe to be a crucial element to success when starting a small business...

You need to have your financial affairs in order and have sufficient capital to start and sustain your business until the revenue kicks in.

As you know, I took a buyout offer from at&t that provided a nice lump sum payment to leave the company in 2005. However, at that time, we were in a situation where both our vehicles were paid off, as was our house. Yep, no car payments and no house payments.

This is one of the reasons my wife agreed to letting me live my start-up dreams. Had we a house note and/or a car payment or two, I myself would have likely passed on the buyout offer.

After all, it would not seem likely that we could pay a mortgage note and a lease note on a retail space, as well as a car note or two, along with double utilities, double insurance, sign costs, advertising and all the other various expenditures. I'm sure some have scrapped by on that dual road, but I don't think I would have risked my wife and kids financial well being to do so.

Now, I'll agree that I did have what some would call a "silver spoon" by not having a car note or house note when I started my business. Without either, the buyout money was more than enough to give me $40k of start-up capital and have a nice fat savings account to live on while the business grew.

However, I still had to manage my start-up budget with lease requirements (first/last months rent and security deposit), signage, utilities and deposits, insurance, advertising, furnishings, office equipment, music gear, etc., etc., etc.

There were several opportunities where I could have spent too much on getting better PC's for the studio ($500 more each), more expensive paint/carpet, furniture from Dillard's rather than Ashley's, a crazy big LED sign rather than a plain lettered sign and so forth. By being responsible in my initial build out, I had the funds to keep me debt free for 12 months, before I would have to hit the savings account.

(BTW - I became profitable 3 months after opening, beating my business plan by 4 months)

Now, if you are looking at a home-based small business, you have instant savings in that you will not have a second lease payment, less fuel costs by not having to drive to-from work, maybe some utility savings, insurance, as well as some tax write offs for your home office. This is more manageable than having a brick and mortar business.

If your business requires a retail/warehouse location, my advice is to have minimal to zero debt (credit cards especially). I know, easier said than done, right?

Well, If you have car notes and a house payment, try to knock the car notes out and drive an older car for several years (they last if you take care of them). Use the savings from the car notes to build your start up capital. Start planning your budget and how long it will take you to get to that dollar amount.

Then - work at saving the money - or if possible, take a buyout like I did for a little head start!

I'll talk soon about that first budget. Whatever you come up with, even with some extra thrown in just in case you overlooked anything, go ahead and add another 20% on top of that. Then, you may be getting close to what you will really spend! LOL