Home Before You Start Resources planning for costs helps you start with a clear plan

planning for costs helps you start with a clear plan

You need a Funding Plan! And what is that? It is a plan that allows you to have the funds available when you need to use them.

Time And MoneyYou are going to incur costs at various stages on your business:

  • Start-up costs
  • On-going costs
  • Growth-spurt costs
  • IPO costs

What, you’re not even thinking about an IPO? Too far in the future… you’re probably right, but knowing that it IS in the future is or part of the planning process. Absolutely we are putting more time and effort in Start-up costs and ongoing costs immediately, but knowing that we are going have Growth-Spurts and other costs in the picture ensures that we are planning to be able to do them.

You’ve created a great service and your initial goal of replacing income from your “real-world” job has finally been realized! This is the PRIMARY goal of all entrepreneurs! Unfortunately, it may also be the only goal… and what happens if you suddenly get MORE requests for help than you can handle? Sure, you can brush them off saying you are too busy, but sending business off to competitors means one thing: your downfall, so get your resumé updated, again!

If you are not prepared to hire people BEFORE you need to, you are risking failing at the exact moment you realized your dream. Do not let that happen.

The following sections can be used for future planning in order of sequence. Savings & Banks for the immediate start-up costs and ongoing costs of running your business; the SBA can come in early or later to help you grow followed by Angel & Venture Capitalists investors to really push your company to the next level.


Many, many small businesses love to put their “backs to the wall” and invest all their savings into their new venture. Doing so actually increases you chances of succeeding – since you cannot go back easily and replenish your savings, then only way forward is making this venture succeed. This is how some of the richest people in the world succeed… and failed… and succeeded… when all your eggs are in one basket you need to be very focused.

Oh… that’s right… the spouse has some “concerns” about this route!

We recommend that you do have enough in savings, at a minimum, 200% of costs in the first year. This means that you calculate expenses to be $6,000 in the first year, then “allocate” $12,000 in your savings account(s) for your business. At the end of each year, to be able deduct your business expenses, the IRS wants you to “invest” as much as your owe – that want you get the expenses as a deduction. Of course, if you need the money back, you can make a withdrawal (on January 2nd) and put back into your savings account.

Once you decide that you have enough savings “allocated”, then you can decide which of the other fund avenues to take. Don’t be afraid of the credit card route from banks, but do be aware of bank charges and how they tend to increase monthly if you are paying the minimum each month.


Without a strong business plan laying out almost ALL the competition, pitfalls & solutions, and “fail-safe” for getting your service out to market, chances are slim that a bank will load a large amount to you. A rule of thumb is that many investors like to put up 50% against your personal 50% investment – they want to be sure that if they lose, you lose.

What many banks want to do, however, is to extend a large than normal credit line for your business! This is probably the best way to go since it can build a strong business partnership with your bank and shows them how well you can management costs and repayment over the years. However, if you go the credit card route, ensure that you have sufficient funds in your savings to be able to cover bank charges and other costs.

Small Business Administration (SBA) Loans

The SBA is a great organization for people starting in business for the first time. You cannot beat experience. And the SBA is full of old folks! But these old folks come with the “baggage” of knowing what works, how to talk to financiers and what they want, how to price services, how to navigate the myriad of business situations you have yet to run into.

And they (the organization) provides loads… oops… sorry, they provide the “back-up” for you to get loans from local banks and other financial organizations. So it’s like a foot in the door when talking with banks and chances are now extremely high that a loan will be given.

Click SBA Loans for Your Startup for a detailed review of the 3 most common SBA loans from Entrepreneur.

Angel Investors

Angel Investors are individuals with money to spare, and the willingness to lend to start-up companies to get them up and running. Of course, they do expect their money back, with a little (sometimes a lot) of profit AND some if them like to provide a “lending hand” depending on the amount they are investing.

Family & Friends should be your first stop when looking for angel investors since they are more likely to hand over the money with minimal requirements. Remember, just because they are close acquaintances  you still should write a formal note on what they are giving you and what is expected in return and ALWAYS provide a reasonable return on investment. And need we remind them that if the company fails, then no monies may be coming back (unless you  state otherwise in the note).

To touch the “real” angel investors you will need to contact the Angel Capital Education Foundation which can link you to investors for your service. The Wall Street Journal wrote a brief articles on What’s an Angel Investor that explains in more detail.

Turn around on payment should be around 3 years, sometimes up to 5 years.

As a rule of thumb, Angel Investors like the person and have “faith” that the person is going to make the service succeed – so ensure that you have a strong personality and know your service and business model.

Venture Capitalists

So you need a LARGE infusion of cash. Venture Capitalists (VC) are waiting for you, and if you get large enough, they will seek you out and say “hello”. They have the funds available to really push you into the “big-time” but, as mentioned in What Venture Capitalists Want?, you need to be able to answer the following questions:

    1. Is your service unique
    2. Is your service in huge demand (sales)
    3. How can VC money invested increase future sales
    4. How will VC get paid (the exit strategy)

Turn around on payment should be around 3-5 years, sometimes up to 7 years or more.

As a rule of thumb, Venture Capitalists  likes the business process – a strong management team and business process usually leads to a successful business – so ensure that you have built a strong team and have them available to answer questions. You will be drilled on the process of how you service works and how you business plans to grow sales over the next 6-24 months.

The above 5 areas shows funding that you can use. The BEST funding for future growth, however, is PROFITS from your service! If you are lucky enough to have a large profit margin over expenses, reinvesting (or keeping) them into your company is the way to grow – you retain all rights and decisions and only need to gain guidance from the SBA or other sources as the spurts occur.


Where you are now

P2R - Planning - Financing

About Tom Joe Finnin

IT professional for over 20 years... currently working at a Fortune 100 company for last 15 years. Love to help people help themselves - let me help you create a web presence quickly and efficiently.

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