If you’re thinking of starting your own business and adding to the 30.7 million small businesses already in the United States, you’ll need to save money to get your business going. If you’re looking to save up money specifically to start a small business, here are several smart tips that will help you achieve your savings goals.
Determine Your Business Expenses
Before you can start making any sort of budgeting plan or timeline, you have to start with making sure that you know exactly how much you need to save. You have to consider how much money you’ll actually need to start your business and get it off the ground. So, what factors should you consider? Here are a few:
- Cost of Product. If you’re selling something physical and not a service, then you should focus on selling the products that have the lowest investment and highest return. For example, if you’re a graphic designer starting a business selling your designs, selling stickers will likely have the biggest return.
- Shipping Costs. For a business where you’re selling physical products, think about how materials and products will get to your customers, and also how they’ll get to you. If you’re buying your items in bulk, consider finding a service that will move your cargo via high volume ships since 95% of cargo moves by ship anyways.
- Material Costs. For example, if you want to sell handmade furniture, this would include the cost of the fabric, wood, and other construction materials that you may need to build the furniture. If you’re starting a service like professional painting, you would need things like rollers, trays, and coveralls.
- Development Costs. If you have to spend time developing your products, you’ll likely have a trial-and-error period. So make sure to take into account how much money you think it will take to develop your products or services.
- Employee Salaries. If you’ll are going to have any other employees, you’ll have to make sure that you can pay them — even before the first customers start buying anything.
- Rent or Mortgage Payments. If you need an office or a storefront, you’ll need to be able to pay rent or a mortgage for your business. If you’re renting, save up for at least the first month and the security deposit. If you want to actually buy a space, save at least 20% of the cost to use as a down payment.
Set a Monthly Amount to Save
Take a look at your monthly income and expenses to start. How much do you have leftover after your necessary expenses like rent, food, and utilities? Technically, that’s the amount you could be saving each month. For example, if you make $3000 a month and have $1400 in reoccurring expenses, then you’ll have $1600 to save. However, you may want to put some of that money into your emergency fund or towards other savings accounts — or even miscellaneous costs like occasionally going out to eat. So consider a plan for how you’re going to save — and how much you can actually set aside — and then determine how long it will take for you to save that much cash.
Pay Down Debt
It’s a good idea to focus on paying down your debt because the sooner you pay it off, the less interest that will be added on top of it. There are certain types of debts, like student loans and mortgages, that you can plan into your monthly expenses since they’re designed to be paid over the course of time. On the other hand, things like credit card debt you should focus on paying off before you start saving up for your business.
Save an Emergency Fund
An emergency fund is very important in case your small business runs into a rough patch — so it should hold enough money to keep you afloat for a few months. This means it should contain enough money for two to three months’ rent as well as any other necessary expenses. As a simple example, if you spend $1400 on your monthly necessities, then you should have at least $2800 in your emergency fund.
Plan for Marketing Costs
One thing many small business owners fail to think about when they’re saving money for their business is the time and money required for marketing. If you’re doing all of your marketing yourself, then you’ll need to do research, which means you’re spending your valuable time on the task. But if you hire an employee or marketing firm to take care of it, you’ll need to save up for whatever their starting fee may be. Also, no matter what kind of business you’re starting, make sure that your business has a website and that that website is a high-quality one. If you focus on SEO, or search engine optimization, you can rank on the first page of google for 92% of users who will choose a result from the first page.
Saving enough cash to start a small business doesn’t have to make you completely change your financial habits — but you do need to rethink them. Just remember, although these ideas are a good starting point, only you know what will be best for your future business.
Photo Credit: Mark Morgan
