I cringe when I hear some entrepreneurs give aspiring entrepreneurs advice about how they started their small business. One of the biggest lies I hear is that “I started my business with $100 or $500.” I’ve heard this statement so many times over the last decade that it is laughable. The truth is, it may have cost these people $100 or $500 to register their business however, I can promise you that it takes more than this small amount of money to successfully launch a new business.
Lack of Access to Capital is the Reason So Many Businesses Fail
No matter what industry your business is in, it may cost a few thousand dollars to successfully launch the business. Startup expenses can include marketing materials (I.e. website, brochures, business cards, etc), supplies, inventory, advertising, etc. This will definitely add up to more than $100 to $500. It’s a proven fact that lack of access to capital is a major reason so many startup businesses fail. According to the Small Business Administration, “the major constraint limiting the growth, expansion, and wealth creation of small firms—especially women- and minority-owned businesses—is inadequate capital.”
Prepare Yourself Before You Start Your Business
Understand that you will need a sufficient amount of capital to start a new business. If you don’t have a rich relative or friend who is dying to invest in your business, you will likely need to come up with the money on your own. You can prepare yourself to invest in your new business by saving money and maintaining a good personal credit history. According to Gallup, personal savings is a crucial source of funding for new businesses.
As an experienced small business financing consultant, I also know that debt financing is just as crucial. If you don’t have significant personal savings, your next option is debt financing. It is possible to get debt financing for a startup however, you typically need to have a decent personal credit history. Therefore, if you plan on launching a new business soon, you current focus should be saving money that can be invested in the business and building (or rebuilding) your personal credit history.