Budgeting for New Businesses

Under capitalization remains a driving force behind the success or failure of new businesses

For entrepreneurs thinking about starting a new business, proper capitalization and budgeting is paramount.

According to the US Bureau of Labor Statistics, “about half of all new establishments survive five years or more and about one-third survive 10 years or more. As one would expect, the probability of survival increases with a firm’s age. Survival rates have changed little over time.”

But what’s really driving the failure of these otherwise creative an innovative businesses? A large part of the problems they are running into stem from under capitalization, or failure to fully grasp the scope of operational expenses in the start-up phase. For a business to succeed, it requires substantial liquid assets, as well as access to low cost loans from commercial lenders. 

So if you’re thinking about starting a new business, here are some steps you can take to improve your chances of long-term success:

• Like cutting firewood, when you first think you have enough, double it. It is better to have enough money and not need it, than to need it and not have enough, so even though your great business idea is burning a hole in your proverbial pocket, just buckle down and save more money.

• Make connections in the commercial banking industry. Offering far more than just investment property loans, commercial lenders can provide liquid capital for equipment purchases, renovation expenses, and hiring / payroll costs to name but a few. Developing those relationships *before* they are needed is critical to your ability to access capital when you need it the most.

• Do your budgeting homework! As a commercial real estate professional, I couldn’t tell you how many small business owners I have shown space to who were surprised by the lease rates or requirements for things like personal guarantees. These things should come as no surprise to the well informed entrepreneur because they will have done their homework. Don’t be afraid to reach out to people like me, even for some rough numbers on realistic rental rates, lease terms, etc. A quick conversation in advance can be the difference between the success and failure of your new business. Isn’t it worth it?

In short, starting a new business can be a daunting task, but you can’t let that hold you back. There are opportunities for failure at every turn, but taking a balanced, responsible approach and working with other professionals that are equally dedicated to your success can help you avoid the countless pitfalls you will encounter along the way. Keep in mind, guys like me want to work with you not just on one deal at a time, but for years down the line as your business grows and expands.

There’s no better way for me to invest my time than helping small business owners craft a realistic business plan.

We are here to help – all you have to do is ask.

Cameron Wilson is director of brokerage services and business development at Bradley Scott.