Entrepreneur Series Lesson 1: Being Undercapitalized

It’s always exciting to think about the idea of having your own new start up. You hear about stories where entrepreneurs started with just $300 and a cardboard box and then turned their business into millions. In reality, having worked with many types of business owners, the first mistake made by most is simply not having enough capital or access to capital while growing your business.

Undercapitalization really involves the language used when a person cannot sufficiently fund their business venture. An idea alone will not lead to business success. This lack of capitalization not only includes the initial outlay to get the business up and going, but really miscalculating the operating expenses in the business—especially in the first year of operation.

Here are three smart things to be thinking about so your new entrepreneurial venture doesn’t fall short financially.

  1. Lines Of Credit. Whether it is a true banking relationship or you have set up an arrangement with family and friends, do you have a written documented line of credit that you can access should the business need capital? Or do you have credit cards available with lines of credit ready to go if you have no other access to capital? You could also try places like www.lendingclub.com or www.prosper.com if you can’t gain access from normal channels for credit.
  2. Up Your Pro Forma By 50%. Whatever you run for your first year of expenses, add 50% to the total number. There will be plenty of unforeseen expenses as the new venture kicks off in its first year. It makes a lot of sense to measure twice and cut once rather than run into a buzz saw in the middle of your first year of business.
  3. 3) Lease vs. Buy. Many banks will work out a 3 year or 5 year $1 buyout program on equipment which may allow you to use your upfront capital more effectively in the first year of business. If you can stretch a line of credit or make an equipment lease it may be a good idea versus using your cash capital.This is part one of a ten part series on entrepreneurship. Many businesses fail in the first year because they run out of money. Make sure you don’t fall in the trap of being undercapitalized!

Written by:
Ted Jenkin

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TED JENKIN IS SECURITIES LICENSED THROUGH INVESTACORP, INC. A REGISTERED BROKER/DEALER MEMBER FINRA, SIPC. ADVISORY SERVICES OFFERED THROUGH INVESTACORP ADVISORY SERVICES, INC. A SEC REGISTERED INVESTMENT ADVISORY FIRM. Linked sites are strictly provided as a courtesy. Investacorp, Inc., and its affiliates, do not guarantee, approve nor endorse the information or products available at these sites nor do links indicate any association with or endorsement of the linked sites by Investacorp, Inc. and its affiliates.

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin has spent the past 23 years giving personal financial advice to thousands of people across the United States. After graduating from Boston College in 1991, Ted spent more than 16 years working for American Express Financial Advisors/Ameriprise Financial. He was one of the youngest people in the history of the company to reach both Field Vice President and Group Vice President level. He managed more than 800 financial advisors throughout 8 states in his last position with the company. In 2008, Ted founded oXYGen Financial to help revolutionize the financial services industry by creating a new company that focused on serving the X and Y Generation. oXYGen Financial now has more than 2,200 clients throughout 25 states across the country many coming from social media techniques. Ted has been featured in over 30 magazines and newspapers including the Wall Street Journal, Business Week, and The Huffington Post. He was on the cover of Registered Rep magazine and featured in the ‘what will financial planning look like in 2023’ article done by Financial Planning Magazine. He has six advanced designations from the College for Financial Planning (CFP®, CRPC®, CRPS®, AWMA®, AAMS®, CMFC®) and is an on air radio personality.

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