How much money does it cost to start a business? How much money is needed to start a business? This is the question on my mind this morning. Due to the nature of my business life, I tend to come in contact with a lot of people daily; both online and offline. And most times, I am asked series of questions ranging from issues bordering on how to start a business, investments, life, economy, religion, relationships and politics.
But one of the most recurrent questions I receive everyday revolves around the issue of raising capital and unfortunately, raising money for a business is one of the hardest tasks an entrepreneur must perform because without capital; there will be no business. In several articles I have written, I have treated the issue of capital both intensively and extensively but it seems I can never provide a definite answer to issues pertaining to raising capital. However, I will do my best to keep providing business information in line with the mission of this business blog.
Sometime ago, I received an email from a Nigerian. Below is an excerpt of the message.
“Good afternoon Dear Bro. Martins,
I have successfully completed my Entrepreneurial Development Training at the EDC. It was indeed an eye-opener. My major challenge however: is how to raise the Start-Up Capital required to start my business? I intend going into the aquaculture industry (catfish farming). I have already been trained at the EDC to write a business plan, which I have already done and submitted.
Initially I thought I could just start the business with maybe N600,000 (approx $4,000) but during my training, I discovered that I would have lost that money, because I did not put into consideration the following:- Pre-Operating Expenses, Initial Operating Expenses (for the 1st 4 months of business) and Opening Stock (for the 1st month of business). The aforementioned details would form what we call the Start-Up Capital.
Now I have a (2 years) business plan with a Start-Up Capital of about N4.9Million (approx $32,000) (including money to lease a land, where my farm will be situated and other things). I seriously do not know how I can raise this sum but I also know that I can start small. But the question is how do I start small in this business, without a land of my own? – (Name Withheld)
After reading the email of this young man, I sent him a well detailed reply and I also made effort to publish the advice I sent him. You can read that in the article “4 Creative Steps to Financing your Small Business Start Up – When no one wants to invest with you.” And after some days, he sent me the reply below:
As soon as I read your advice, I went back to my Business Plan and then I calculated the minimum cost of Start-Up capital, I can use to start my Catfish farm Business. I then came up with N525,000 estimation, out of the N4.9Million initially stated on my Business Plan. My question dear Bro. Martins is, how to raise the N520,000 which I believe would enable me, start off/float a small scale catfish farm.” – (Name Withheld)
To be sincere with you, I was happy that my advice had an impact on him and I commended him for taking action. But there’s still a question left to answer and that question is this:
How Much Money is Needed to Start a Business?
From personal experience and based on my interactions with entrepreneurs, I observed that most aspiring entrepreneurs tend to puff up the figures required to start their business. Most entrepreneurs are opinion that it is better to raise a cash surplus than to be short of cash. Well, I think they have a point there.
But realistically, I have noted from personal experience that most businesses can be kick started with far less money than is required in the business plan. Truth is that most entrepreneurs are looking for the easy way out; they are just been lazy and that’s why they sit on their business ideas, waiting for millions of dollars in start up money. Another factor that keep entrepreneurs from acting on their ideas and plans is their unwillingness to start small. Most entrepreneurs dream big, which is right in all ramifications but you have to learn how to start small and grow from there.
After successfully starting and building several successful businesses, I can boldly say that a business can be started with less amount of capital and bootstrap financed from there; though this might be limited to some industry that are known to be capital intensive. Examples of capital intensive businesses are Airline businesses, manufacturing and the rest.
However, the point I want to stress is that a business can be started for much less than is listed in the business plan. All you need is creativity, a good management team or strategy and the will to survive. Once these three components are in place, you can survive, grow strategically and even outperform a competitor with much more in capital.
In conclusion, I want to re-emphasize that lack of capital cannot stop a determined entrepreneur from launching a business; neither can inadequate capital stop a business with good management from growing. Inadequate capital can only reduce your growth rate, but if you are determined to be in business; you will keep things going until you are able to attract outside investors. So don’t sit on your ideas, don’t wait for the million dollar investor; revamp your business plan. Devise a strong strategy, eliminate the components you can start without and kick start your business with what you have. Where there is a will, there will be a way.