How to Save Cash to Start a Business

By: Eric Giltner, Senior Area Manager
Grand Forks Area Office
North Dakota District Office

Every week small business counselors visit with clients who have a great opportunity to go into business but do not have enough money saved for the required “start-up equity” injection. Start-up equity is defined as the total value of cash and assets brought into a new venture by the principal owner. Lenders generally require a 30% start-up equity position, although this value can change either up or down given other situational factors. A significant start-up equity injection shows a high level of commitment by the client to pursue the opportunity during good times and bad. This makes it easier for a lender to act favorably on a loan request. Significant start-up equity also may show that the borrower has a level of fiscal responsibility that would translate favorably to the challenges of running a business.

An entrepreneur who does not have sufficient start-up equity can turn to family members or friends and receive a monetary “gift” to qualify for a loan. In this situation, the lender will ask the person providing the gift to sign a document stating this fact and acknowledging there will be no attempt to have this gift repaid until the original loan is paid in full. Oftentimes, this requirement will discourage the family member from participating.

Unfortunately at this point, an entrepreneur will often abandon the opportunity. A better option would be to create a savings plan so when the next opportunity arrives, they have enough start-up equity in place to move forward.

Anyone who is earning an income has the ability to create and manage a “savings plan.”  The first step is to review current spending habits. This requires a detailed listing of every dollar spent on a monthly basis. This analysis then becomes the starting point for creating a savings plan.

Distinguish Needs from Wants
Creating a savings plan means adding some discipline to your spending habits. Do you really need that $3.50 cup of coffee every morning? That adds up to $875 each year for a 50-week work schedule. Bring coffee from home or invest in a single serving machine at your work desk and save hundreds of dollars.

Pay Only for What You Use
Do you really get full usage out of that “premium” fitness center membership? Shop around and chances are you can realize significant savings on a plan that fits your schedule. What about your cable bill? Do you really watch those premium channels enough to warrant the extra dollars? You may be able to save money by dumping the plan and renting new releases when you have time to watch them.

Manage Your Interest Costs
If you have credit card debt and are making minimum payments each month, you are in for a long ride of paying an inordinate amount of dollars on interest payments when compared to the actual principal dollars. For example, if you have credit card debt of $3,000 at 17% interest and make minimum payments of $25, it will take you 126 months to pay off the original $3,000. And, you will have paid $2,241 in interest charges for a total cash outlay of $5,241. Contact your card issuers to request a lower interest rate, if possible, and then increase your payments above and beyond the minimum to get this debt retired as soon as possible.

Review Your Cell Phone Usage
Sit down and review your cell phone bill. Are the dollars spent on text messages and pictures really worth what you get out of them? Talk to your cell provider to find a plan that fits your new budget goals.

Buy in Bulk Where it Makes Cents
Buying in bulk serves no purpose if you use the item two or three times a year and/or there is danger of spoilage. Consider the “pod” or one serving coffee brewer discussed earlier. You may find bulk purchasing provides considerable savings compared to buying single servings.

Avoid the New Car Cash Trap
Sure, a new car provides certain panache to your lifestyle, but if you are interested in saving money for a new business, buying a two-year-old vehicle coming off lease will save you cash in the long run. Better yet, find a reliable five-year-old vehicle, pay cash and save even more money.

Create and Follow a Budget
Once you have reviewed your expenditures and eliminated or reduced unnecessary or unneeded payments, create a budget for all areas of cash outlay: rent, utilities, groceries, entertainment, clothing, etc. Keep track of each budget area and you will find it easier to stick to your budget. There are some very useful free cell-phone apps available to help manage your budget.

Use Automatic Deductions for Savings Account
Before the advent of automatic deductions, budget experts would advocate paying your savings first each month before any other expense. It is hard to save money at the end of the month if you have unknowingly spent it all. The automatic deduction works the same way, only better. It causes you to work with what remains in your paycheck to meet your living expenses.

There are many other ways to save. For example, you can buy used versus new, research price offerings to get the best deals, and eat in rather than out. You will be surprised how much money is wasted by not following a well thought out budget for everyday living. Finally, when that new business opportunity comes up, you will be ready to invest and start that new business and as an added benefit, you will have developed financial skills needed for success.

Eric GiltnerEric Giltner has been a Business Development Specialist and the Grand Forks area manager for the U.S. Small Business Administration since 1998, having formerly been assistant to the dean of the UND College of Business and Public Administration. He received his B.S. Degree in Geological Engineering and his Master's Degree in Business Administration from the University of North Dakota. Eric can be reached at



Other Financing Articles from the North Dakota District Office

How to Prepare a Loan Proposal

Capacity and Credit

Good Start-Up Planning Includes Pinpointing Cash Needs

7 Financial Fundamentals That Will Help Ensure Business Success