How to Estimate the Small Business Capital You Need

Because you’re a smart entrepreneur and not “just” a dreamer, you realize that you’re gong to need small business capital to make your business a reality.

But how do you estimate just how much capital you’re going to need?

The following are 4 things you need to keep in mind when estimating your needs, taken from Microsoft’s Small Business Center:

1. Learn how muc capital you’re likely to need in your small business by interviewing other entrepreneurs with businesses like yours about their needs. You don’t need to reinvent any wheels when estimating your small business needs.

1. Use your library, and do online research to learn more about your likely business capital requirements. The Web and your library are free, and thus won’t add to the capital that your small business will require.

1. Join trade associations and go to trade shows to learn more about how much capital you’ll need for your specific business. Again, seeking out people who are successful is one of the best ways to find out about your specific small business needs.

1. To start estimating how much capital your business will need, first put together an assessment of your small business initial costs including incorporating, any licenses and permits, rent or mortgage, and supplies as part of your business considerations. Be sure to include any costs specific to your business that you’ve learned about while researching the capital needs of your kind of business.

1. Next, figure out your ongoing capital expenses most small business incur for six months. Include items like taxes, your own living expenses or salary, marketing, and any working capital you’ll need when putting together this part of your small business estimate.

Time is another important consideration when estimating how much capital you’ll need. According to StartUp Nation, you need to factor in the time it will take to get your new business off the ground when estimating your small business requirements.

Pessimism isn’t normally a positive trait – but the ability to look out for potential problems is an asset when estimating capital needs. According to Entrepreneur magazine, a 2004 US Bank study said that 70% of small business failures were due to “starting out with too little [small business capital].” According to the article, “That’s often because entrepreneurs who are wet behind the ears don’t realize that they should calculate their needs based on their worst-case scenario instead of their best-case forecast.”

In this economy you may want to increase your estimate to make up for any outstanding difficulties the economy may impose on your business. It may take longer than usual for your specific business to start showing a profit, so be sure to reflect that increased wait in your estimate.

As entrepreneurs we are frequently dreamers and idealists. We don’t want to crunch numbers to estimate our small business financial needs. However, doing the work to know how much capital we’ll need is one of the first requirements for our success. Small businesses need capital just like our families need money to live on. Successfully estimating your small business capital needs now will allow you to concentrate more on the parts of the business you’re passionate about later. And, having enough capital on hand will bring you far more joy and far less stress.