The Financial Truth About Starting Your Business

Guest post by Desirée Dupuis.

Starting a business is extremely exciting. You are taking control of your career, your future, your life, and your income. In my opinion there is nothing better than knowing that I am completely responsible for my success, for the amount of money I make, and the freedom and flexibility I build into my life. However, all of these benefits are not a given for all business owners and they definitely do not come without an upfront cost.

The first thing you need to know as you consider how to finance a business is that it takes a lot of money and a lot of time. Before you even open your company’s doors, you will have to invest a significant amount of money in marketing activities, tools and supplies, market research, PR, inventory, office space, product development, etc. And once your doors are open for business, it does not mean that you will automatically have sales. It takes time to build brand awareness, get customers, and gain market share. This process usually takes a couple of years and I call it the snowball effect. The beginning stages move along quite slowly until you reach a certain point when your business (the snowball) is big enough that it has the momentum moving in its favour and it is growing at an exponential rate.

For the first couple of years, you will essentially be investing everything you make back into your company, leaving little money for actual profit. The big question is: will you be able to survive financially if you are making little to no money for the first two to four years while you build your business? You will need a partner that can support you through this process and/or a substantial business loan, line of credit, business credit card, or a business grant. In short, you need to consider how to finance a business and a life.

In order to get money from outside sources such as a loan, or a even better, a grant; you will need a solid and comprehensive business plan. It will be very difficult for you and your business to succeed without a strong business plan.

The main reason most new businesses fail is because they do not have the money or capital to get them through the first few years. I imagine most people do not realize how close they were when they ran out of options and had to shut down their business. I encourage you to do your due diligence and make sure you are fully prepared with a financial plan to get you through the first three to five years of your business. For most businesses, once you have made it past the five year point, your income should be stable and substantial enough to support you. The five year mark is usually when the rewards of being a business owner begin to outweigh the costs and all of the time and money that you have invested is really starting to pay off.

Editor’s Note: While you consider how to finance a business, you might also want to get some tips from people who have been there and done that. Guest poster Joanna Kwan offers tips on working from home, Lara Leontowich offers advice for moms starting a business and Felicia Lee is starting Mom CEO Academy.

Desirée Dupuis is a Licensed Financial Advisor and Partner of Three Sixty Financial Group. Desirée provides financial eduction to young families and empowers moms to make the best decision for their family’s financial future. You can find her on Facebook and Twitter.