Developing a business venture requires money. It’s usually the last hurdle to overcome. Most often, you’ll need a lot of it. So, where do you get it? Savings? Family? Friends? The bank? Fat Tony?
Money doesn’t grow on trees
The monetary well is only so deep. It won’t take long to burn through your cash and exhaust all your financial options if you go over budget. What are you willing to give up in ownership and control to secure the necessary funding to finally open and start generating revenue?
Don’t count on the bank as security will be demanded and that exposure is worrisome. Banks don’t take chances. The financial vulnerability for you and your investors is absolute. A second mortgage is sustainable in the short term, but 10, 15, 20, or 25 year terms will be suffocating in the long run.
Money flows one way until you open
Your cash flow during design & construction will be a negative with lots of expenses, but no revenues. Payments are primarily focused on creating the venture which includes construction and legal & accounting fees along with inventory purchases.
You may have to pay yourself a monthly salary as the personal necessities such as rent/mortgage, food, and related expenses are ever present. The contribution you make to building the project is a cost and should be well worth it.
Cash reserves are devoured quickly, so cost overruns and delays are killers. And when does the rent kick in? Unforeseen costs will invariably surface as well. Sometimes at the worst time.
The well ran dry
And what if money runs out? It did for me, but I was able to keep the wolf from the door for a few months until I found additional financing from a new bank (another post). Not a pleasant time though.
My initial investment was through my parents who took a second mortgage at a lower interest rate. I could afford to pay the monthly payments as I was lucky that I also lived with my parents for the first few months.
As noted in the post “You Need Just Two Things to Start a Restaurant,” not only did I have gas in the tank, but I now had money in the bank.
Putting a price on relationships
Moreover, can you afford the strain on your personal relationships when your venture is tenuous at best? Broken families and lost friends result from failure. Not something easily quantified.
I could afford to be an entrepreneur. The burning question was for how long?