You have the dream and you have the drive. You know you have what it takes to become a successful young entrepreneur. Writing a business plan doesn’t scare you. Leading a team comes naturally. You can totally picture yourself as a Young Entrepreneur to Watch in Forbes Magazine.
The entrepreneurial spirit thrives in you.
There’s just one problem: you have no clue how much money you’ll need to get started.
What, exactly, does “low-cost” mean in terms of funding a start-up? Maybe you’ve heard the phrase, “It takes money to make money,” but how does that work? How much money does it take to make money?
The bad news is that no matter what business venture you launch, you will likely have at least some expenses to cover upfront. The good news is that you are lucky enough to live in a time when you have a world of helpful tools at your fingertips. Those tools can greatly reduce otherwise major startup costs.
TEST YOUR IDEA FIRST
You may make the best widget the world has ever seen. But that’s of zero help to you if there’s no market for widgets right now.
Start with market research. This is free. Ask your friends and family what they think about the idea of your widget. Would they use it? Would they pay for one? How much would they pay?
Next, imagine your target audience. In the case of your widget, your target buyers are high schoolers like you. Now, narrow it down. Your ideal customer is 15-18 years old, takes at least 1 A.P. class, is involved with at least 1 afterschool club, and has their sights set on college. You believe your widget will be of great value and service to this customer. Why? How?
Ask some of your target customers the same questions as above. Would they use it? Would they pay for one? How much would they pay?
Social media groups and online message boards are free resources for finding your target customers. Young entrepreneurs can’t afford to be shy! Neither should you make ridiculous promises (“Everyone who answers me will receive a free widget!”). This is simply market research. You are gathering information. That’s it.
CALCULATE THE COST OF PRODUCTION
You’ve done your market research and you are confident there’s a customer base for your widget. That’s great! That’s a big, important step, and one that will help you avoid wasting time marketing to the wrong people. One of the many things young entrepreneurs are good at is avoiding inefficiency.
Now, calculate the cost of making a widget. What materials will you need? How much do those materials cost to purchase, including shipping? Will it be cheaper to buy in bulk? Can purchase your materials wholesale?
Next comes the cost of producing your widget. Here’s where it can get tricky. If your widget needs to be produced elsewhere – say, a manufacturer or a professional 3D printer – you’ll need to consider both the cost of going off-site as well as the time it takes. When it takes a long time to produce a single widget, that will mean a higher sale price because you can’t make a lot of them all at once.
However, if you can make the widgets yourself, or if they can be manufactured quickly and easily, then you can probably price your widgets a little more cheaply. Remember to add your time and hard work to the cost of widget production. Your time is valuable, and so is your skill and talent. That’s part of what people will pay for. Don’t undervalue yourself!
REMEMBER YOUR OVERHEAD
Ah, here’s where we get into the nuts and bolts of your startup costs. Below is a shortlist of things to consider when preparing to launch your enterprise:
- Web hosting
- Licensing fees
- Payroll, if you have employees
- Equipment, such as your own 3D printer or sewing machine
- Storage space, if you have a lot of inventory
- Service tools, if you are mowing lawns
- Transportation costs, if you are offering in-person services
- Fees you’ll need to pay if you use sites like Etsy to sell your product
- Shipping costs per widget, if you are shipping products yourself
Don’t let yourself get overwhelmed. Depending on the nature of your widget or service, you probably don’t need every single one of these things to get your business up and running. For example, a babysitting service requires only the cost of transportation and maybe some marketing, like flyers or a website.
GATHER YOUR FUNDS
Now that you’ve calculated the estimated costs of launching your business, it’s time to get that money together. You may have some money saved up that will cover your startup costs. Investing in yourself is one of the best feelings a young entrepreneur can experience!
Not everyone has the capital to fund their startups themselves, and that’s fine. Maybe your idea is too big for a website and some flyers. This is where investors come in.
Sites like GoFundMe and Kickstarter make it easy for young entrepreneurs to raise the money they need for their small businesses. This means people believe in your widget so strongly, they are willing to buy one before it’s even made.
PROFITS MAY NOT BE IMMEDIATE
Once you are up and running, be prepared to wait before you see real profit. Those of you who have investors will need to fulfill your promises, whether that’s paying them back or sending them the widgets they helped fund. And all those other costs, such as your website or Etsy fees? Only after those are covered will you see a profit.
That profit, though. Just imagine! Your hard work, careful preparation, and solid work ethic is paying off. Literally. Enjoy your success. You deserve it!
Startup costs for launching a small business shouldn’t scare you off. Your idea is valid. Success is there for those who are smart and realistic about how much it takes to get the ball rolling!
Florida’s young entrepreneurs are encouraged to apply for a Kantner Foundation college scholarship. Learn more by clicking here!