Managing your Start-Up Costs
The amount of money you have available has a direct impact on the amount of money you can get from a lender. They work under a formula. Some lend to 4x what you have and some less, like 3x or in some cases 2x. You should clearly understand how your lender loans money before you ask them for money.
Talk to your lender early in the process. The lender will tell you how much they can loan you and under what terms and conditions. Your start-up numbers tell you how much money you need. How much of a down payment you have will tell you what you can expect from the lender. Knowing that, you now know what you have to spend. So, know the amount of money the lender will give you first….before you ask!
For example, if you have $10,000 the bank might loan you $40,000.
Sure, we all want to build an amazing storefront; nonetheless, there will be a limit as to what you can afford to build. Be realistic when budgeting for your start-up expenses.
Once you have that number, stick to it. I have seen so many people overspend on leasehold improvements, fixtures and the like. They think that the operational cash flow can pay down the excess. Wrong! The operation will in most cases struggle to cover its own expenses let alone the burden of having to pay for opening cost overruns.
There are ways you can reduce upfront costs.
- Rent a smaller space for less money. It will cost you less to set up.
- Buy refurbished equipment rather than new equipment. Remember, customers don’t buy the shelving, lighting, POS machine, office equipment, etc.; instead, they buy your products, services and your outstanding service.
Stay on budget and you’ll be fine. Don’t build what you can’t afford.
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