How Much Do You Need to Save to Start a Contracting Business?
Trying to start your business without a ton of money is hard. You either need to save or find some other form of funding. When you ask around, you might get recommendations to focus on savings or credit exclusively. In truth, you’ll probably do best with a balance of the two. Here’s how to figure out what you might need.
Why You Should Save to Start Your Business
Starting a business could be one of the biggest purchases you ever make, right up there with buying a house. Putting in your own money lowers your debt load. Being able to invest a few thousand dollars, if you have it, can save you a lot of money on interest. It could also keep your monthly overhead as low as possible. The good news is that there isn’t a hard number that you must save before you can start a business. Outside of the bills you have to pay to create your business, any amount you save will help you out later.
How to Grow Your Business Savings
There are two steps to increasing savings: Increase the extra money you have after the bills are paid, and find ways to make that money work for itself. Look through your current budget and bills and see what you can trim down. Drop excess money into a separate account. If you’re months or a few years out from opening your business, you might consider putting some of your money into a short term certificate of deposit. This is an account that brings in a higher rate of interest than regular savings. If you have a habit of whittling away your savings on minor things, this is a great tactic because you can’t easily tap the funds before the term matures.
When Using Credit May Make Sense
Of course, most people would take much longer to start a business if they had to wait until they had enough to bankroll it entirely off savings. Running a business is expensive, especially at first. It may be many months or even a couple of years before your business stays in the black from month to month. This is why a lot of people turn to credit for a portion of their business needs. Getting a small business loan to provide you with funds you can use to buy equipment or hire employees can help you get the whole operation off the ground. A line of credit could make it easier to buy or rent equipment, or make up the shortfall between buying materials and getting paid for the project.
How to Avoid Going Broke Financing Your Business
When you look at your use of savings and credit, remember that moderation is the key. You don’t want to put in every last dime of your savings, leaving you nothing in case something unexpected happens. You also probably don’t want to put everything on credit, because you’ll have higher monthly bills and the threat of many creditors breathing down your neck. Maintain a close eye on your finances, and try to plan to have other backup sources of income for the first 6-12 months you have your business. A side job or extra savings can help you keep the lights on while you work on making your business profitable.
Finding the Right Balance of Savings and Credit
Sitting somewhere between all savings and all credit is the wisest route for most people. If you have no funds to contribute to the cause, you might not even be able to get certain loans without a down payment. More lenders are ready to work with you if you can make a personal commitment. But if you’re afraid to tap possible lines of credit, you may run out of savings faster than you think. The right solution allows you to regulate your cash flow and keep your monthly bills at a manageable rate.
Saving before going into business is a great idea. Just remember that you can also take advantage of credit. Doing both is your best bet, especially if you do it wisely. To find out what you need to do to start your contracting business, contact CSLS today!