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."
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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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