Raising Money

Making Sure the Capital Fits the Business Type

Written by Brenda Stokes for Gaebler Ventures

When starting a business you need startup capital to fund the business, but the question is how much you need. Too much can be bad and so can too little.

When you have a business idea, the most exciting thing you can do is put it into action and start a business.

Making Sure the Capital Fits the Business Type

However, you need money to start your business with. Unless you have a savings in place or enough credit to go ahead and start, you are going to need business financing.

Business financing can be acquired in a few ways. You can obtain a business loan from your bank, you can obtain financing from investors, or you can solicit friends and family. You just need to make sure you obtain enough financing, but not too much. Your business type is going to determine how much business capital you need.

Too much business capital

Too much business capital can do more harm than good. It sounds like a good idea to have more money than you need when starting your business, but it could ultimately lead to your demise.

You see, you are liable for every dime that you borrow. If you borrow too much, that is all the more money you are liable for. For example, your business may fail. You could possibly financially handle the burden of the amount you should have borrowed, but borrowing too much caused otherwise.

Too much business capital can be worse than not having enough.

Too little business capital

When you have too little business capital, you face not having enough money to start your business. This means that you may need to look for additional financing after you start your business, which can lead to an additional cost in the way of interest, or try and pay for the difference out of your pocket.

Either way, there are financial consequences to be had.

Estimating the right amount of business capital

To make sure you start your business with the right amount of business capital, simply look at your business type. Ask yourself these questions:

1. What can I personally invest into my business?
2. What equipment and supplies do I need?
3. How much is my marketing going to cost?
4. How many people do I need to hire and at what rate of pay?

The above does not have to be hard to figure. Yes, you will have to do some research. For instance, you can find suppliers for the equipment you need and get approximate prices, you can easily estimate the cost of such items as office supplies, find out how much it costs to advertise online and offline, and determine how many employees you can start with.

Being that you are just starting your business, you may want to start with the bare minimums and use business income to acquire any other supplies in the future, including adding members to your staff.

Because you are just starting, you do not want to assume that what may cost you $20,000 to start will require $100,000 or vice versa. You simply need startup capital to start your business and not financing that will sustain it over the next 5 years. Your profits will do that for you.

Brenda is a graduate of California State University and a professional writer covering a variety of business topics. To learn more about Brenda, check out her website at The Digital Inkwell.

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