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

Request a FREE consultation: www.oxygenfinancial.net

Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS.

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

Hey!

My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid…

Read More About Ted Here

Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

Background and qualification information is available at FINRA’s BrokerCheck website.

No Comments