You cannot hope to start, operate and succeed at your small business without sufficient money. A lack of cash is one of the primary reasons that a large number of small businesses fail within the first year. Many first-time business owners don't consider, or they greatly misjudge, the amount of money needed to get their small business off the ground. Consequently, they don't secure enough financing to carry their business (or their family) through the period before the business starts to make money.

Don't get caught in that trap. To avoid being "undercapitalized" you will need to do adequate cost planning during your pre-launch phase. It's a safe bet that you will end up spending more money than you planned, so err on the side of caution. Most experts recommend that you arrange for start-up funding to cover your operating expenses for six months to a year. At the very least you will need several months to find customers and get established.

To determine how much in financing to pursue, you will need to develop detailed cost projections. Experts suggest a two-part process. First, develop an estimate of your one-time start-up costs. Second, put together a projection of your operating expenses for at least the first six months of operation. Performing these two exercises will help to ensure that you put into place the necessary financial cushion to start and stay in business.

HOW to Estimate Start-up Costs

Estimating how much you will need to start your business requires a careful analysis of several factors. Put together a list of the various one-time initial costs of opening your doors - those expenses that you only have to pay once. Record them in the table below.

Table 1
START-UP EXPENSES	AMOUNT OF CASH NEEDED
Housing your Business: First consider where you plan to house your business. Will you be constructing a building? Write down the amount of money per contractor bid and other one-time fees that will be associated with constructing the building. If you are purchasing a place of business, write down the purchase price if paid in full with cash. If you are going to rent office space, record the rental deposit (usually equal to one month's rent) that will need to be paid before opening.	$
Outfitting your Place of Business: Now take a look at what it will cost to outfit your business. You will need to consider the interior of your place of business, as well as the exterior.	$
Fixtures: Write down the retail prices of any fixtures you will need to open your business. These might include counters, built-in storage shelves and cabinets and window display fixtures.	$
Transportation and Installation of Fixtures: Record the expenses you will incur to transport and install the fixtures identified above.	$
Office Equipment: Now consider what office equipment you will need to operate your business. Under this category you will estimate the one-time cost, if paid in full with cash, of office computer hardware and software, printers, fax machines, copier machines, telephone and telephone systems, cash registers, office safe and delivery equipment, if needed. Record the cash down payment if you will be purchasing the equipment on contract.	$
Machinery Equipment: If your business will require machinery or equipment to produce your product, record the one-time cost of purchasing that equipment, if paid in full with cash, or the cash down payment, if purchased on contract. If you will be leasing your equipment, record the lease fees that must be paid before opening.	$
Transportation and Installation of Equipment: Record what you expect to pay for the transportation and installation of your various pieces of equipment. Will you need to hire a computer consultant to advise you on your hardware needs, or to install software? What will contractors charge you to install cash registers, your business safe or other pieces of equipment?	$
Furniture: If you need office furnishings (desks, credenzas, file cabinets, bookcases, sofas, chairs, end tables, lamps), record the cost of each. If you're paying cash in full, enter the full retail price. If you are going to pay by installments, make note of the down payment as your start-up cost.	$
Decorating and remodeling: If your office space will need to be reconfigured, or you will need to redecorate, anticipate what you will spend to do so. Talk to suppliers with whom you plan to purchase these services, and record in this category the cash prize of such services. If you are renting office space, sometimes you can negotiate with the landlord to include renovations in your base rent.	$
Business Exterior: You may also incur some costs to prepare the exterior of your place of business for opening. Consider whether you will need to purchase outside signs or exterior lighting and record the cost. Anticipate other expenses you will incur to ensure an attractive, safe entry to your place of business.	$
Your Product: Now it's time to consider the one-time costs related to the product or service your business will sell to customers.	$
Raw Materials: If you are a manufacturer, you will need a supply of raw materials on hand so you can keep up with orders; record the dollar cost of the materials.	$
Beginning Inventory: Record the dollar cost of the inventory you will need to open your business as well as the stock you will need to replenish until your business starts to bring in enough money to purchase inventory.	$
Protecting your Business and Employees:
Insurance: Obtain a bid from your insurance agent for property insurance and other types of business insurance you will need. If you plan to offer your employees health insurance, talk to your agent about the up-front fee. Record the premium payment you will need to make before opening your business.	$
Office and Employee Security: If you will be engaging the services of an office security firm, record any up-front fees.	$
Promoting your Business:
Advertising and promotion for your opening: Record the dollar cost of any initial advertising and marketing that you plan to do to announce the launch of your business. Include the cost of flyers, sales letters and calls, signs, brochures and other promotional items. Also, in this category include the cost for printing office letterhead and business cards.	$
Operating your Business
Deposits with Public Utilities: Record the cash you will need to establish telephone service, electricity and other public utilities. Include line connection charges, the cost of any inside and outside installation that might be required and any initial deposits.	$
Attorney, CPA and other Professional Fees: Determine what initial fees you will need to pay your attorney, accountant and any other professional to retain their services.	$
Business Licenses and Permits: Find out from local and city authorities the cost of any business license, building permit or name registration fees. If the product or service you sell is taxable, you will need to check with your state's Department of Taxation/Revenue about the cost of a sales permit, and any licenses the state may require.	$
Supplies: This category will include costs for purchasing office supplies (paper, pens, staplers, etc.), cleaning supplies and other supplies you and your employees will need in order to produce your product or provide services.	$
Services: Will you be hiring a cleaning service or a landscape service? If these services require a start-up fee or down payment, you'll want to record them with your start-up costs.	$
Unanticipated Expenses: Include an estimate of cash that will be required for unexpected expenses or losses, special purchases and the like.	$
Other Miscellaneous Expenses: Merchant Association fees, amount of cash needed for the cash registers, bank service fees, etc... should be recorded here.	$
TOTAL START-UP COSTS FOR OPENING Miscellaneous expenses like Merchant Association fees, amount of cash needed for the cash registers, bank service fees, etc. should be recorded here.	$

HOW to Project Repeating Monthly Operating Expenses

Now you will want to consider the ongoing, recurring costs you will face each month. Write down the anticipated expense for one month in column 2, based on sales of a specific amount per year. [As you review your financials each month, you'll be able to gauge whether you are on track to achieve your sales target. If not, then perhaps it will make sense to adjust your monthly expenses accordingly.] Multiply column 2 by six to obtain the six-month estimate of your operating expenses that experts recommend. This figure should be placed in Column 3.

Ongoing Expenses will typically include the following:

Table 2
ESTIMATED MONTHLY EXPENSES	ESTIMATE OF MONTHLY EXPENSES BASED ON SALES OF $ PER YEAR	MULTIPLY AMOUNT IN COLUMN 2 BY 6
Column 1	Column 2	Column 3
Employee Expenses
Employee Wages: In this category, include an estimate of your monthly salary as the owner-manager, as well as the salaries and wages of any other employees.	$	$
Payroll Taxes, including Social Security.	$	$
Health Insurance (exclude any amount included in your Start-up Costs)	$	$
Workman's Compensation Insurance	$	$
Housing your Business
Monthly mortgage or rent payment	$	$
Building/Landscape Maintenance	$	$
Protecting your Business
Office and Employee Security (exclude any amount included in your Start-up Costs)	$	$
Business Insurance (exclude any amount included in your Start-up Costs)	$	$
Outfitting your Business
Office Supplies	$	$
Office Equipment Leases	$	$
Machinery Lease Payments	$	$
Your Product
Inventory: Include amount required for inventory expansion.	$	$
Sales Tax	$	$
Promoting your Business
Advertising and Promotion: Monthly cost of yellow pages or other types of advertising, postage for mailing sales promotions, printing of leaflets, etc.	$	$
Operating your Business
Utilities: Telephone, DSL lines, electricity and other utilities. Include costs of cell phones and pagers.	$	$
Utilities: Telephone, DSL lines, electricity and other utilities. Include costs of cell phones and pagers.	$	$
Maintenance and Repairs	$	$
Delivery/Transportation Expenses	$	$
Attorney, CPA and Professional Fees	$	$
Bank Service Fees	$	$
Loan Payments: Principal and Interest	$	$
Credit Card Charges	$	$
Cleaning Service (exclude any amount included in your Start-up Costs)	$	$
Miscellaneous, such as your family's living costs	$	$
TOTAL REPEATING COSTS	FOR ONE MONTH $	FOR SIX MONTHS $

Table 3
FINAL TALLY OF CAPITAL REQUIREMENT
TOTAL START-UP COSTS	Insert Total Amount from Table 1	$
SIX MONTHS REPEATING COSTS	Insert Total Amount from Table 2	$
TOTAL CASH NEEDED		$

WHAT Else to Consider

You'll want to consider both business and personal living expenses when determining how much cash you will need. If you are leaving a salaried job to start your business, you should include in your expense projection an estimate of your and your family's living costs for the months it will take to build your business. Talk to family members about the minimum amount of money your household will need each month to function. This figure should be inserted into the miscellaneous category in Table 2.

ECONOMIZE, within reason

Once you add up start-up costs to your six-month tally of recurring costs, the total may amaze you and spur you to consider ways to economize. It probably makes sense to review certain categories, like equipment, office supplies, or advertising/promotions, with cost-control in mind. As a new business owner, you may be tempted to overbuy or insist on purchasing brand new items and these practices could rapidly put you out of business.

Review your list of projected expenses and decide if used office equipment or furnishings might make sense. Perhaps you could look for items at tag sales or used goods sales. Newspaper classified ads can lead you to house sales, bankruptcy auctions and furniture resellers. Shopping on the Internet can make it easy to search for new or used products and comparison shop for the best prices.

Remember, however, when you are contracting for services or making a major purchase, to beware of deals that sound "too good to be true." Always check out the reputation and marketplace records of unfamiliar businesses, professionals or contractors with the Better Business Bureau. Obtain references and check out the quality of work beforehand. Be particularly leery of purchasing products in response to unsolicited e-mails. The business or stranger offering you the "unbelievably low" price on software or machinery might well be a scam artist, or located in another country that does not offer the same consumer protections as the United States. Visit the Better Business Bureau Web site at www.bbb.org to research BBB reports on businesses and find out more about shopping safely online or in the traditional marketplace.

A final word of caution - don't be penny wise and pound foolish. Insurance is a necessity; business licenses and permits are not optional; payroll taxes are a must; so too are competent professionals who can guide you on financial and legal issues. Don't skimp on the necessities. You want to build your business in the right way, abiding by local, state and federal business regulations.

LASTLY, Get a Reality Check

Now it's time to do a reality check. You've estimated your start-up costs to the best of your ability, but chances are, you've never owned or operated a business before. It's probably wise to talk to an established or experienced business owner to determine whether you've made the correct assumptions in projecting your costs.

There are a number of resources you can turn to. You can contact a trade association that serves your particular market niche and ask for a referral to other entrepreneurs who own businesses similar to yours and would be willing to share their experiences. Or attend trade association meetings and talk to people in your industry. You can also contact the Service Corps of Retired Executives (SCORE), which is sponsored by the Small Business Administration. SCORE can put you in touch with an experienced retired business owner who can help guide you through the process of starting your own business. Contact the SCORE Association office at 1.800.634.0245 to find a SCORE office near you. Finally, you can ask your attorney or accountant for referrals to business owners who have relevant experience.

For More Information on Start-up Costs

The Federal Citizen Information Center (www.pueblo.gsa.gov) has a section on Small Businesses, with helpful publications and lists of resources for those starting a small business.

Business Week magazine's Web site (www.businessweek.com/smallbiz/index.html) has a Small Biz center that offers news and advice for entrepreneurs.

Consumer @ction (www.money-wise.org) has published a Consumer Action Publication entitled "Micro Business Basics" that discusses how to build a sound financial foundation for your business.

Inc. magazine's Web site (www.inc.com/resources/startup/) has a Start-up Resource Center for business entrepreneurs.

The Service Corps of Retired Executives (SCORE) offers publications and can also put you in touch with an experienced retired business owner to serve as a mentor. Visit their Web site at www.score.org or call 1.800.634.0245 for a SCORE office near you.

The U.S. Department of Commerce Minority Business Development Agency (www.mbda.gov) has articles that discuss how much money you will need to start your business, includes helpful checklists and provide referrals to other resources of information.

The U.S. Small Business Administration (www.sba.gov) was created specifically to assist and counsel small businesses. Its publication, Small Business Start-up Kit, includes a checklist for calculating start-up costs.

The SBA's Online Women's Business Center at www.onlinewbc.gov includes a helpful section on evaluating start-up costs.