How Much Money Do You Have to Start a Business?

In an earlier post, I listed some questions a mom should ask herself before starting a business.  Some had to do with time available, what to do with the kids while you work on your business, and what kind of business was right to start. Now we’re talking about money and it’s a topic I wished I had thought more about before I started, because I certainly spent a great deal of money starting my business and despite though those overnight successes your hear about, GirlMogul was not one of them.  It was awfully easy to spend the money once I got started, even though I thought I had committed myself to fiscal responsibility.

Now, you do read about people who start businesses for $500 or less.  How?  Well, in that case, it seems like they are starting a service business – marketing services, freelance writing, cleaning business.  Their initial start up costs might consist of business cards, some flyers, a cell phone and an internet connection.  So if you’re considering a service business, the overhead and start up costs can be low – especially if you have an in with your first clients (your old boss at the advertising agency, aunt Mildred’s friend’s niece who needs a housecleaner) etc.

However anytime you start selling product, your costs go up – in addition to the business card, cell phone and internet, don’t forget the cost of the inventory or merchandise you are selling.  Usually you will buy $5 and be able to sell something for $10.  So the $5 is your profit but must be spread out across the other “marketing” expenses you incur.  Some exceptions – direct sales companies, like Avon cosmetics or Lia Sophia jewelry – you might only start with a very small amount of inventory as a sales kit – but most sales are done from a catalog and you never have to actually carry inventory.  This is why the direct sales model is so enticing to moms with a yearning for their own business but little money to start one up.

If you get into creating products and selling them, consider how you will pay for and source the inventory.  If you want to sell t-shirts, before you go off and get a 100 t-shirts created (like I did), consider using Zazzle or Cafe Press to have some made up with your design, getting feedback and then altering before committing to carrying inventory.  You can even create a complete shop on Zazzle and Cafe Press – they do on-demand printing of t-shirts and other products with your design – you set up the designs, and drive traffic to your store.  You make money with the difference between their base price on an item and what you charge for it.  You won’t make a 100% markup, rather 10-20% (translating into a few dollars a shirt) it the norm.  You have to have a lot of buyers to make this work, but if you’re a designer and all your graphic work is free, then this can be a great way to monetize your skill without having to become a manufacturing expert.

when I started, I made sure I spent less on inventory so I had money to spend on advertising. If I could have a do-over I think I might have done a few (well a lot) of things differently.  By having it in my head that I could spend money on advertising for my business I spent it in the wrong places.  I should have focused on finding free advertising like word of mouth. I should have started blogging sooner and gotten very creative about ways to build my email list faster and bigger using low cost techniques.

So in summary, when starting a business, keep in mind some businesses, like one where you plan on retailing products (through an internet store, craft fairs) requires money for inventory.  Even if you’re a crafter you still need to buy supplies.  For service businesses, start up costs can be low – no inventory, just some marketing and set up costs.  If you’re a designer who wants to create her own line – check out Cafe Press and Zazzle and see if you can use on-demand printing to avoid the high costs of inventory and fulfillment.  And of course, definitely consider direct sales as a possibilty.