Solid business plan begins with solid startup funds

Research has shown that it was in times of a downtrodden economy when many of our country's largest and most prosperous corporations were formed. Recognizing this, the Congressional Black Caucus Foundation (CBCF) has developed the CBCF Entrepreneurship Series, a three-part educational series to encourage entrepreneurship and educate future business leaders on best practices for developing and growing a successful business venture.I was an opening speaker with Congresswoman Barbara Lee at the inaugural workshop series at the 2009 CBCF Annual Legislative Conference held last month in Washington, DC.

As the economy continues to struggle and many people look to get rich working from home, two questions usually come up: how can I do it and how much business startup capital is required? The typical entrepreneur can get started on anything from no money down, knocking on doors for work, to less than $1,000. Today, many Fortune 1,000 CEOs launched businesses with $10,000 or less. And more than a third of those CEO boot-strappers started with less than $1,000.

Realistically, success requires written business plans calculating the amount of capital needed to launch and sustain your business initially for six months or more. It is advisable to include a financial cushion into estimates such as payroll, supplier obligations, loan payments, advertising, rent, furniture, utilities, insurance, licenses fees, sales taxes, community memberships, and salary allowances for living expenses.

If your small business consists of retail operations, determining the amount of initial investment is contingent upon the estimated projected annual sales volume. The startup projects should be based on up-to-date market research within retail targeted sectors, i.e. organic dog foods or home-made holiday decorations. A major difference between manufacturing and retail ventures focuses on the initial scale of investments going toward machinery, equipment, or raw materials that may be used for several years such as powder coating or precision machine tools.

Alternatively, service firms generally require, neither merchandise inventory nor large equipment investments.The service venture offers the lowest investment to market entry.This fact accounts for the U.S. Labor Department occupational statics reporting the service industry will continue to expand for the next10 years.

Beyond popular Federal Small Business Administration (SBA) loans, many sources of financing are available to the entrepreneur but the amount of money and degree of ownership retained primarily vary widely.

Raising equity capital involves less risk; however the entrepreneur in this case is forced to give up greater ownership control of the business. For example, investment partners such as friends, family, other entrepreneurs, or shareholders retain a greater ownership role thus more control over the venture.Community credit unions offer lower interest rate loans to members. The most common types of loans credit unions extend include equipment, vehicle, computer, or furnishings - if your credit rating is good you could qualify for a $5,000 to $10,000 credit union loan.

Often overlooked are commercial supplier or franchise credit whereby depending on your credit rating, suppliers may provide startup items such as inventory, furniture, fixtures and equipment on a delayed payment basis. For example, inventory generally requires repayment within 30-days. Furniture, fixtures and equipment would be paid off within one or two years. Supplier credit has several advantages, enabling entrepreneurs to stretch capital and deduct interest charges from business tax returns.

Small business venture capital sources referred to as "angel investors" are another source of privately funded capital which focus on profits generally expecting 25 percent annual returns on investments over a three to five year period. These investors require significant equity ownership with the expectation of spinning the business out through a public stock offering. The venture capital investor is primarily suited for unique product innovations or technology related startups seeking money of $250,000 or more.

Ultimately, every entrepreneur must carefully weigh the financing options available finding the method that best works for their needs. It is advisable to speak with a trusted mentor or community leader - listen carefully learning from others experience always remain open minded and determined to achieve your financial goals.

Farrah Gray is the author of "The Truth Shall Make You Rich: The New Road Map to Radical Prosperity," "Get Real, Get Rich: Conquer the 7 Lies Blocking You from Success," and the international best-seller, "Reallionaire: Nine Steps to Becoming Rich from the Inside Out." He is chairman of the Farrah Gray Foundation. Dr. Gray can be reached via email at fg@drfarrahgray.com or his Web site at www.drfarrahgray.com.