How Much Money Do You Need to Start Your Entrepreneurial Journey?

When you decide to pursue your own path, be the captain of your fate, the master of your soul and the boss of your dreams, you’ve decided to become an entrepreneur. An entrepreneurial journey is one that involves creating positive change, taking risks, building a team and making a dent on the universe.

Clearly, this journey is not an easy one. It’s fraught with risks, stress and uncertainty. What’s critical while having the ‘luxury’ of pursuing this journey is that you’ve given your finances a serious look, and have them in order. But, how much money do you really need in the bank to start your entrepreneurial adventure?

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The simple answer is that there is no secret recipe or ‘exact amount’ of money you need to begin. No ‘amount’ fits all, so you’ve got to nail down your own financial formula. But, there are some frameworks which cannot be neglected. So let’s get right into them!

1. Minimum Viable Income

You’ll definitely need money to live. That’s a no-brainer. The main point here is working out exactly how much you need to survive each month. This is your so-called “Minimum Viable Income” which puts food on the table and pays the bills.

Start by calculating your fixed expenses and your variable expenses. Fixed expenses are those you’ll definitely need to incur to maintain your living standards, like rent. On the other hand variable expenses are those that fluctuate depending on how much you consume, like entertainment or coffee.

Formula For Minimum Viable Income: Fixed Living Expenses + Variable Living Expenses

If you’re young, single and have nothing to lose, like Steve Jobs was when he started out, you can even cut out some of your fixed living expenses. By living with a friend or your parents, you practically eliminate one major expense from your life. Just make sure you don’t get used to the comfort of avoiding rental expenses, and give yourself a deadline on how much time you’re going to be living as a ‘guest’ before you move out.

Once you arrive at this number -- let’s say it’s $1000 a month -- you need to work out a way of making this amount of money, in the least amount of time possible, so you can devote the remaining time you’ve got to “The Life Changing Idea” you want to work on. If it’s $1000 a month, can you provide consulting services for a couple of hours a week, or sell products on eBay to make the cut? Evaluate your options and your skills carefully and pick one that suits you.

2. What Type Of Business Are You Wanting To Build?

Are you looking to build a service or product based business? The former requires less investment upfront, while the latter requires higher capital outlay upfront and the ‘holding capacity’ to survive until your business becomes profitable.

You’ll need to evaluate which type of business to enter, depending on your unique personal and professional circumstances and resources. There’s nothing stopping you from starting with a service based business and transitioning to a product based one in the longer run. The important thing is to take the first step.

Calculate how much you’re going to need for your business. Business registration expenses, legal costs, initial marketing costs, any technology costs, internet expenses, printing costs. The goal is to have a clear idea on the expenses you’d incur each month.

If you’re building a product based business (especially if it’s a tech product), whatever amount it’ll take to build your product, double it. History proves that tech projects almost never get completed on time. Might as well plan ahead, and be smart about planning your expenses.

As a suggestion, in a product based business you should have enough funds to at least fund the “MVP” so you can get some traction on your idea, before going to investors to seek further funding.

Once you know the expenses involved, you’ll be able to confidently set a revenue target for your business. This is absolutely vital to ensure your business is viable. While projections will not match your reality, it’s important to know how much your business needs to make in revenue, so you can carve out the right path depending on how things go along the journey.

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by Akshay Sachdeva via SitePoint