Smart Ways to Save for a New Business

There’s nothing like plotting for your future business. You can picture your clients, your sales pitch, maybe you even have a logo in mind. Once the idea takes hold, it’s hard to think about anything else. The more you imagine taking your skills to new levels and making people happy, the more you know this is the right move.

Here’s the thing — if you want your business to become a reality, that new business plotting has to turn to business planning. The most important parts of planning are the financial steps you’re going to take to start your business whether that means budgeting, saving money, applying for a loan or all three.

Depending on the type of business you want to start, there’s a wide range of up-front costs. In this article, we’ll cover those various starting costs and how to calculate your financial needs, as well as saving for and financing your business. When you make financial education a part of your business before it starts, you’re setting yourself up to be more successful in whatever venture you begin.

How Much Money Should I Save To Start a Business? 

If your idea requires a brick-and-mortar location as well as staff — such as a hotel or restaurant — you might be looking at starting costs that begin around $125,000. In contrast, starting a drop-shipping business might cost you less than $100. Below, we’ll cover ways that you can plan your future business’s budget and better understand how much capital you’ll need in the beginning.

Determine Which Costs are Essential or Not

There are a few essential steps when calculating the starting costs for your new business. Some budgeting apps or software can help with the process, but you can do this first draft with a simple pen and paper.

1. Determine all your vital one-time costs
2. Estimate the variable expenses (ie: shipping costs, materials and advertising costs)
3. Calculate your monthly revenue
4. Calculate your total costs
5. Review your costs and your revenue, adjust as necessary

When reviewing, you might find that your budget isn’t balancing out and you won’t be able to make a profit from your business even if you have plenty of work. If that’s the case, you’ll need to trim your costs and tighten your budget. This might mean limiting your advertising budget or getting creative and working out of your home rather than renting a brick-and-mortar. 

Which costs are fixed or recurring?

Steps one and two above mention one-time and recurring costs. Your one-time costs might include buying the equipment you need to start your business. For example, if you’re starting a t-shirt screen printing business, this might be the cost of your tools and your press.

Your recurring costs might include the cost of t-shirts, ink, advertising, or even the cost of hiring a designer for the artwork. When calculating your recurring expenses, don’t overlook the less obvious recurring expenses such as energy or point-of-sale costs.

Saving to Start a Business

While you might be looking forward to making purchases to get your business off the ground, the first part of starting a business doesn’t start with a purchase. It starts with saving. The first step to saving money to start a business is setting up goalposts to keep you motivated. When you’re setting up these goals, break your start-up costs into smaller bites so that your long-term goal isn’t as intimidating.

Make sure you maintain a healthy bank account balance once you start investing in the items or services that your business will need. Before putting everything you have into your business, including your time, you should have saved enough to cover a year's worth to help you get by even if the business isn’t immediately profitable. 

Here are a few ways that people save to start their own business:

●     Deep cleaning their monthly expenses: Trim your monthly expenses by canceling subscriptions or choosing a cheaper phone plan. Set that money aside for your business.

●     Eliminate or reduce debt: Credit card debt is especially expensive. Come up with a payment plan and limit your purchases to the essentials to ensure that cards can be paid off in full every month.

●     Make a budget: Create a budget and dial it in so that you can stick to it. Many people find that budgeting services or software is helpful in better understanding their monthly expenses.

●     Automatically transfer money into a high-yield savings account: Money that’s not working is money that is losing value. A high-yield savings account is the perfect option for those who want to put their money to use while keeping it liquid. Set up an automatic transfer or a partial direct deposit to your high-yield savings account to make your saving strategy become a habit.

Other ways to secure financing for your new business

It’s not always feasible to save all the money you need to launch a business. If you’re an entrepreneur and you’re ready to get started, here are a few more ways to finance your new business. Keep in mind that debt that you cannot afford can be expensive; before venturing into a business using debt, make sure you have a plan to pay it off. 

• Banks and credit unions often offer small business loans. Types of small business loans include:
  • Term loans: the standard option for new and existing businesses. They are typically repaid over five or more years.
  • Line of credit: these business loans work a little like a credit card but are meant for expenses that are larger than you would typically buy with a credit card.
  • Equipment loans: This type of business loan is for specific equipment that will help your business function. It can be used for something as small as a point-of-sale system or as large as an MRI machine.
  • Commercial vehicle loan: This loan comes into play if a specific vehicle such as a van or bus is required to start your business. 
• Crowdsource: This might mean turning to friends and family for a loan or using a crowdfunding platform. Either way, this is a popular source of funding for many entrepreneurs. While this funding source might not come from a financial institution, it’s still important to have a plan to pay back your lenders to maintain their trust in you and your business. After all, the people that fund your business are often the people that are interested in using your business
• Personal loan: If your business doesn’t qualify for a small business loan, you may want to consider using a personal loan to fund your enterprise.
• Angel investors and venture capital: Many entrepreneurial hopefuls have heard of the big money behind angel investors and venture capital. However, since they are paid in equity, these lenders typically deal with high-growth businesses that will pay large dividends. If you believe your business is a good candidate for angel investing, you may be interested in pursuing one of the platforms that host angel investors and making your case.

Your Partner in Business 

Small business owners have been partnering with DCU since we opened our doors in 1979. Since then, we’ve been helping businesses grow with small business loans and free business checking accounts. Contact us to see how we can help your business plans become a reality.

_{Please note, membership is required to open a DCU checking or savings account. Visit our membership eligibility page for more information.}

_{This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.}