Coronavirus (COVID-19): Relief options and Additional Resources

Good Start-Up Planning Includes Pinpointing Cash Needs

By: Roger Larson
SCORE Counselor

“How much money do I need?”

Entrepreneurs often ask this question when planning a new business startup . Too little, and you risk running short of cash and derailing your venture before it even gets started. Overestimating your needs has drawbacks too, as a higher amount may necessitate additional debt with its associated costs. Though the surplus may be put to good use elsewhere in the business, the extra liability could still weigh down your balance sheet at a time when you want to be running as lean as possible.

Good budgeting and financial planning can help any small business right-size its funding needs. But how can a start-up with no experience make the most accurate projections possible?

Former wholesale warehouse owner and veteran SCORE counselor Roger Larson, recommends using SCORE’s free spreadsheet templates with built-in formulas to prepare pro forma forecasts for the first three years of operation. The spreadsheets include expense categories for start-up and ongoing operations, enabling the user to plan for each step of the transition into a sustainable small business.

“Once you learn how to use them, it’s much easier to do ‘what-if’ scenarios and compare the results,” Larson says. “You can then use the first-year projections as your budget, and track things as you go along.”

In making start-up financial projections, Larson recommends paying particular attention to balance sheets and cash flow forecasts.

“For example, you may find that $30,000 will get a business started,” he says. “But if it takes a year and a half to break even, it may well take another $30,000 to reach that point. Not recognizing and planning for these situations is a serious mistake.”

Once you’ve determined your start-up’s financing needs, you can identify the best source(s) for acquiring it. Many entrepreneurs use their own savings, while others look to local lenders for a guaranteed loan, such as an SBA-backed business loan. There are several other options to consider as well:

  • Credit cards. Though convenient, credit cards usually have high interest rates. If you’re a sole proprietor, missed payments could damage your personal credit standing.
  • Friends and family. Another convenient source, but loans must be wisely structured to avoid damaging personal relationships.
  • Crowdfunding. An Internet-based method where small business ideas are pitched to a cooperative pool of potential investors. Increasingly popular, crowdfunding nevertheless has limitations and currently lacks regulatory protections against fraud.
  • Grants. No federal program gives “free” money solely to start a new business. However, state and local-level programs can help offset certain costs (e.g., office and production space, investing in energy-efficient technologies). Locating a business in a designated enterprise zone or one undergoing economic revival may also earn tax credits and reduced rates for rent and utilities.
  • Angel investors and venture capital firms. These are individuals or groups who lend money or acquire an ownership interest in a small business, usually one with the potential for rapid growth and high returns.

SCORE offers free and confidential business advice to help you build your business - from idea to start-up to success. SCORE counseling and workshops are offered by volunteers who are experienced business owners or managers. To setup an appointment with a SCORE counselor, contact a SCORE Chapter in your area:

Roger LarsonRoger Larson has been a SCORE counselor for more than 12 years. Roger owned and operated a wholesale public storage building for 20 years and managed a large farm supply fertilizer plant before that for 20 years. He can be reached at