On The Money

Figuring out how much cash you really need to start your business

Entrepreneur magazine, September 1998

Anxious to start turning a profit, entrepreneurs often launch their companies without carefully estimating the amount of capital they'll need to actually get started. Many insist passion and enthusiasm will be enough to get them through the rough periods. "Passion and dedication are important," agrees Marge Lovero, president of the Entrepreneurial Center Inc., a business training and consulting firm in Purchase, New York, "but unfortunately, they can't pay the bills or keep you alive during the start-up months."

Lovero recommends new companies start out with enough capital to cover projected expenses for at least six months. "It's foolish to expect to generate revenue immediately," she says. "It's best to play it safe and plan for all contingencies."

The type of business you start plays a critical role in determining the amount of start-up funds you require, says Lovero. "A retail business, for example, can regenerate revenue immediately, whereas service businesses typically have to wait between 30 and 90 days before they're paid," she explains. "These facts give you some idea [as to] how much working capital you'll need during the early months."

The following four scenarios provide a window into situations you may someday face-and might help you avoid mistakes when predicting your start-up expenses.

Bob Weinstein is the author of 10 books and is a frequent contributor to national magazines.

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