You will need two sources of money. The initial source will pay for the things you need to get your new business off the ground. The other source will be used to pay your operating expenses until your business reaches break-even point; the point where you are taking in the same amount of money you are paying out.To estimate the first source of money, make a list of all the things you will need to start your business. This might include equipment, tools, inventory, fixtures, lease costs, office supplies, vehicles, signs, pre-opening advertising, fees and permits, and everything else you can think of. These are often referred to as “start-up” costs. Opposite each of these items, put an estimated cost. If you don’t know the cost, find out. If you have uncertainties, estimate on the high end.
The second source of money, to be used for operating expenses, involves estimating your cash outflow for all the things you will have to pay for after you start your business. This might include such things as rent, utility bills, gas for vehicles, supply replacement, payroll, payroll taxes, advertising, insurance, bookkeeping or legal fees, etc. If you will estimate each of these items for one month, you can multiply the months’ totals by the number of months you think it will take you to reach cash break-even.
When you will reach cash break-even is a judgment call by you based on what you know about your business and like-type businesses. If you are going to err…err on the side of conservatism. It will be far better to have too big a pot of operating money than to run out of operating money.