Can You Afford to Become An Entrepreneur?

Posts Tagged ‘Business plan’

Can You Afford to Become An Entrepreneur?

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Everyone has good ideas. Some of them may even be million dollar ideas, but if you live from paycheck to paycheck or way beyond your means, you may never be able to quit your job and start a business.

As the Smallbizlady, often I get emails, facebook messages and DM’s on Twitter from people asking me to help them start a business. My first three questions are usually something like this.

What is your business idea?
How much money do you have saved?
How much money do you think it will take to launch this business?

If question two brings on a case of stuttering, I start shaking my head.

You should have three pools of money before your start a business.

An emergency fund for the household
12-24 months of budget to run your household
12-18 months of money to launch and operate the business

Now hear this, “Your ability to save has everything to do with your ability to start a business!”

Money is not everything. It’s just a tool, but it is certainly the beginning of a business plan. Banks rarely, if ever, loan money to start-up businesses. Banks will typically not deal with you for a loan or line of credit until you’re been in business 2-3 years and can show growth in the business with your financial statements and business tax returns.

There are some franchising opportunities that will provide some working capital, but 30-50% of the money will still come from you. And by the way, you will need to have significant net worth and assets to collateralize the loan. Think of it this way, no credit = no business. When you are first starting out in business, you are your business’s credit.

So what do you do if you have a great idea and no money? There are other sources of funds to start your business. There’s the 3 F’s Family, Friends, Fools. Your family loves you and hopefully believes in you enough to invest in your business. If you are fortunate enough to have a family that can afford to invest in you– you are fortunate, but beware. Your rich Aunt Sally may think she’s your boss and might call you up every 30 days to check on how her $50K is doing. You may not want that kind of pressure in your new business.

Then there are your friends. Nothing can kill a friendship faster than borrowing money that you can’t pay back. I have a rule. I do not loan money to friends, I give it to them. I make sure that I do not give away any money that I cannot afford to lose. Would your friends do that for you? If so, they could be an option.

Every once in awhile, a hungry entrepreneur will come across a rich guy who’s an idealist about business, who falls in love your idea but doesn’t wish to run the business. That is an angel investor— who will invest money in the company for an equity stake and lend his or her network to help you. Do not get your hopes up about finding an angel investor in this economy. It can happen, but let’s just say you are better off using your own funds that you save to start your business. Family, friends or an angel investor can be fools for investing in a half-baked business idea. Invest your time, to make sure you have a sound business plan before you take anyone’s money. And do have a plan to show them—for when and how you think you’ll pay it back.

If you do have assets, you are in a different situation. You can borrow against your 401K, you can take out a home equity loan, you can sell your home or rental property, you can cash in a Roth IRA. The money must come from somewhere—its best when it comes from your own coffers.

It’s essential that you start your business from a position of financial security. Otherwise, you’re finished before you get started.

Melinda F. Emerson, SmallBizLady, is one of America’s leading small business experts, whose mission is to end small business failure. Forbes Magazine recently named her one of the Top 20 women for entrepreneurs to follow on Twitter where she hosts #SmallBizChat, Wednesdays 8-9pm ET for emerging entrepreneurs. She publishes a resource blog www.succeedasyourownboss.com and is also the author of the national bestseller Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. (Adams Media)

I want to start my own business but don’t want to use loans. What types of grants are available?

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Author: The Money Coach

Q: I am interested in trying to own my own business but don’t want to use loans. What types of grants are out there and how do I get my hands on them?

A: We asked small business expert Melinda Emerson, author of Become Your Own Boss in 12 Months to answer this question:

“It’s a good thing you don’t want to use loans to get your business started because banks do not lend money typically to start-up businesses. You need to be in business for two to three years to qualify for even a line of credit. Unless you win a business plan contest or inventors competition for the most part there’s no such thing as finding a grant to start a business.

The money to start your business will come from your right or left pocket. In fact, there’s three pools of money you should have before your start a business

a) an emergency savings account

b) enough budget to go from 12-24 months without a paycheck

c) the first year of operating capital to run your business..

Now there are some franchises that provide funding, but 20-30% of the loan must come from your resources.”

Good Luck,

Melinda Emerson

Author, Become Your Own Boss in 12 Months

@Smallbizlady

www.succeedasyourownboss.com

Why Startups Surged During the Recession (usnews.com)

Ask The Money Coach

Posts Tagged ‘Business plan’