The norm these days is for soon to be business owners borrowing just enough money to buy or open a business and not much more.
The thing these people forget is that they will immediately be inundated with bills as a result of the sale or start up.
These include accountant fees, taxes, legal fees and so on, which can easily get up above the $5,000 mark which of course, they don’t have.
You then have to buy stock, or if purchasing a business, replace old existing stock.
Then you worry about selling yourself out of debt.
The key is to work out how much it will cost you to operate a business for a full year, taking into account all the expenses, including your wages.
Then add the cost of replacing or buying any equipment that isn’t in good enough condition.
Then try and have a 20 per cent contingency. Whether you’re buying a business or starting up one, the formula is the same.
If you can’t raise that much money then think long and hard about getting into business in the first place.
If you are starting a business, you will need to be sure that there are people who are prepared to buy your products.
If you’re buying a business, you are buying a cash flow and existing customers (goodwill).
Unfortunately, there is no guarantee that the customers will continue to use the business when you take it over.
Owning and operating your own business can be incredibly rewarding but it’s certainly a lot more enjoyable if you have good financial planning.