How Much Money Does It Cost To Start a Business
How Much Money Does It Cost To Start a Business?
So I opened up my Perry Belcher e-mail today and I’ve got this message from a guy this question:” hey Perry, How much money does it cost to start a business?”
After always being an advocate of the term “there is no dumb question” I don’t know, I may have to change my mind on this one.
Asking me how much money is going to cost for you to start a business is like asking “how much a bag of groceries”. It all depends on what’s in the bag.
If you’re strapped for cash, service businesses are usually lowest costs to start, because you can trade your time and skills for money. Often, depending on the type of business that you enter you may have little or no start up costs.
Retail and manufacturing businesses are cash hogs. These are two businesses and you better not start without a bankroll, that being said, there to the easiest businesses in the world to sell if you make them work.
Right now manufacturing is the fastest-growing sector of the US economy. If China continues to raise the value it’s currency the products are going to become more more unattractive US buyers, and with political unrest, the US could easily raise tariffs on Chinese goods and fundamentally price them out of the market.
Retailing, the first business I was ever in, is very tough nowadays. In my opinion, unless you’re manufacturing or importing the products that your retelling you’re going to get eaten up by national retailers.
The Walmart’s of the world, Home Depot, Bed Bath and Beyond and the Gap are all retailers that import their own goods to sell in stores. This cuts out the distribution chain, and gives them giant margins. So if you’re trying to compete by buying from a wholesaler that’s probably paying more for the goods he’s selling you than one of these major retailers you’re pretty much screwed.
The food businesses usually where people’s minds go next ” everybody says I’m a good cook maybe I’ll start a restaurant” Anytime you ever hear these words realize it $50-$200,000 is about to disappear out of someone’s bank account.
Being a good cook does not a restaurant make. Restauranteurs have to be some of the most cost-conscious, negotiating business minds on the planet to actually make that proposition work.
Between food cost, staff, and real estate most restauranteurs only get to keep between 2% and 5% of what they take in as profit, so you can see you have to sell a metric ass ton of hamburgers to make a living.
- A side note in the food business, I have made a lot of money in the mobile food business. I own several hot dog carts, and heve successfully ran a lunch delivery service, snow cone stands, ice cream shops and another a number of other specialty food cart businesses, heck one summer I made over hundred thousand dollars with a lemonade stand at a union station Mall in St. Louis.
These businesses are very different from true brick-and-mortar restaurants.
Basically if you’re wondering how much is it going to cost start your business, you’re probably getting way ahead of yourself. Firstly decide which business you want to be in, if any. The truth is that this is a really only for about 2% of peopleshould ever own a business. That’s the amount of people who are typically successful in business out of the entire population.
Time for you to speak up:
If you have ever started a business before, tell us about it, tell us how much it costs start, and how quickly you got a return on your investment. It might help all these other folks who are thinking about starting a business.
Just common in the area below. Thanks, Perry Belcher
8 Responses to “How Much Money Does It Cost To Start a Business”
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I started a transportation business. I converted a Cadillac hearse into a limo. Purchasing the hearse and having it converted probably cost me $5 to$7 k. I have been doing this for a little over a year. I really haven’t started making a “profit” but the business has pretty much been paying for itself. I’m just being patient and keeping it going. I know it will start making a profit soon. I found that the one thing that really causes businesses to fail is giving up
Hope this helps
The business that takes the most money to start is the rental business, but the flip side of that is that most of the money doesn’t need to be your own; you can usually get a mortgage for 90% of your investment, and sometimes, you can buy an apartment house on a land contract with even less down.
The business that takes the least money to start is a school. If you are teaching yoga, you need very little more capital at all. If you are teaching people how to operate heavy construction equipment, on the other hand, you’ll need a bulldozer, a euclid, etc., and even if you’re leasing all that, you’ll have to come up with quite a bit to lease them.
Retail or wholesale, you’ll have to invest $2 or $3 in inventory and receivables for every $1 in monthly sales even if you can do 12 turns a year – and most can’t turn inventory as quickly. Inventory, receivables, raw materials and work in progress may be as low as 30c per $1 of monthly sales and for light manufacturing, the capital equipment can be leased without a massive capital investment.
Service sounds like the way to go, until you realize that there’s not much markup on labor and it’s terribly expensive to acquire clients. Typically, service businesses need $2 in sales for every $1 in wages, and it costs $1 to buy an existing practice for every $1 in gross annual income. You can build your practice instead of buying, but it’s slow, and how are you going to eat in the meanwhile? It’s not like you can work for your existing boss while you are trying to start a business that competes with him.
If you are starting a piano school while working a day job as a short order cook, great. Otherwise, the way to go for minimum investment is manufacturing. Your customers don’t care that you’re building their picnic tables at 3 AM or on Sundays, which helps a lot during the transition phase, and the investment is relatively small compared to the net proceeds from the business.
Does your business need to throw off $6,000/month? (That’s NOT a large figure!) If you have $30 in materials and supplies to make a $300 violin, and you’re opening a one-man business, you need to produce about 24 violins a month.
If you could buy the materials you need at the Lowes 3 blocks away, and you sell your violins for cash, as quickly as you can produce them, you’d hardly need any capital at all.
On the other hand, I suspect you’d need to buy sitka spruce, and season it for a year in advance before planing and starting to shape it. Playing it safe, you’d want 18 months worth of spruce on hand. Figure $8,000 in inventory.
After you produce your violins, you ship them to music stores, and wait for a check. It may take you 90 to 120 days to get paid. That could be another $25,000 in accounts receivable.
But most businesses can’t ship product as quickly as they make it. The violin business is probably seasonal – so you end up selling a bunch when school starts, and a bunch for Christmas. You may need 6 or 8 months inventory in order to stay busy and meet customers’ demand. That’s another $36,000 to $48,000.
Now, consider the fact that it takes a while to build a reputation and for business to ramp up. If it takes 3 years to do that, you need 18 months income for the business to afford you while you’re getting your feet wet.
Altogether, that’s about $150,000 – and that’s not including any equipment you’d be leasing or buying. And that’s for a one-man business. If you have 10 employees, you need 10 times as much raw materials, and 10 times as much in raw materials. Unless the 10 employees each have unique skills, you need not have 10 times as much on hand to cover start-up losses, because you’ll only hire people when you need them.
Yeah, it sounds like a lot. And, in fact, it IS a lot. If you can figure out a way to start part-time while you’re supporting yourself doing something else, that’s a lot easier way to go….
It seems as if a the hot dog cart business would be a great place to start.
I so agree with you that mobile food business is the best way to go if you are starting a business. The best food people to sell food is to collage students. About a year ago I started selling Burgers to collage students in a collage in India. It worked so well, when I started I only began selling 10 buns, and in two months it went to 80 bun’s. I believe if you want to sell food, target the collage students.
I m going to start a business of event managment . Can you please help me out for proceedings please?
Starting a business needs some certain kinds of strategies of business set up plans and market research but the most effective points is that it needs funds but it is totally depends upon what type of business you need to start and in how much quantity.
I went the service route – copywriting service to be exact.
Like you pointed out, I figured low overhead costs – mostly trading my time for money.
It took under $500 to start (for website, domain, internet service, phone, and fax), and the business was definitely worth the investment.
However, the problem with sticking to the service business route is eventually you’ll want to spend more time expanding your business and less time working on other people’s projects.
A smart way to go about this is to start a service business doing something you enjoy. Spend time honing your skill. Once you get really good, bring employees on board to help you with the more mundane tasks. Then train others to handle other aspects of the service.
Eventually, you’re managing and overseeing everything that’s going on… which will hopefully give you some more time to pursue other ventures.
But $100k earned one summer on a lemonade stand, huh? I think I’m going to do some research into the food cart business as well.
Danielle
Internet business would be the lowest cost biz to start, but only in the sense of money. You’ll need to put in the sweat equity.
Started my first website in late 2007 — got the domain for 8 bucks and paid less than 5 bucks a month for hosting.
After I discovered copywriting I eventually ended up doing that for others, and I would agree that consulting and service business is the fastest way out of the dilbert cube (as Perry Marshall would put it)… In this sense the internet is different in a lot of ways, for example how one client could contact me via my site, costing me ZERO in terms of cost-per-acquisition, and end up being worth $50k in fees and royalties.
I find that after working with a lot of clients, it has more to do with knowledge of what to do with the money, and not as much as how much money you have to spend.
But as far as realistic start-up costs go… with a solid foundation in direct marketing knowledge, I’d say you could get rolling and get profitable with less than $5k… in some cases, even 10x less than that.
Great post, Perry.
Cheers,
Linus