Starting a business can seem overwhelming, but it takes the right kind of person. For many people looking to start their own business, money can be their biggest concern. You’ve got the dream, but you don’t have the dollars. People will often look for assistance using commercial loans
to gain the money needed to get started, but what if you already owed thousands of dollars? Let’s take a look at the cost of starting a business with student loans. In this example we’ll use a pizza place.
Research and Planning
Before you begin investing your time and energy into a business, understand if and where there is a need for it. Where is there a lack of pizza places? Once you’ve determined a good area where there will be demand for the product look at your competitors. Look specifically at, prices, marketing, branding, and style. Now take a look at the median income for the neighborhood and surrounding towns that your pizza place would be located in. Is it a lower-income neighborhood or a higher-income
neighborhood? Understand the area and price your product accordingly.
Now that you have a better understanding of what you’ll need to start your pizza place create a business plan. If you’re in need of additional funding for your business this business plan will be of the utmost importance. There are different formats available for business plans, some more traditional while others are fairly brief. Be sure to check online for samples.
The Cost of Business
Know what your expenses will be. Identify what those expenses are. The SBA has a list of expenses for starting businesses. These expenses include office space, equipment, supplies, utilities, licenses, permits, inventory, lawyer, salaries, marketing costs, and website costs. Once you have a list of your expenses, estimate out how much you’ll need to spend on each. Check out this handy worksheet that
illustrates the starting costs for a pizza place.
The SBA expense calculator provides an estimation of $18,975 as the starting costs for a business. The estimation includes one-time expenses like equipment, security deposits, and legal fees and monthly expenses like rent, insurance, and advertising. Every business is different, but typically there is some type of investment that must be made upfront.
Now don’t forget that if you’re looking to start a business you can use some “startup costs’ as tax deductions. Tax deductions* per the SBA site
include costs to get your business operation ready and costs of investigating the creation of a business. Once you have an idea of your expenses and what is tax deductible, you’re onto step two.
Here is the “fun” part where many young entrepreneurs get caught up - getting the funds. Not only do younger entrepreneurs not have the dollars but, they owe thousands in debt. That thousand dollar debt is likely due to student loans. According to a recent survey
, nearly half of Americans considering starting a business said that student loans
were a major barrier to entrepreneurship. Refinancing student loans can help. When refinancing you may get a lower rate or change the terms of the loan. It can help lower your monthly payments, sometimes significantly, giving you more cash in your pocket.
Once your personal finances are in order (decreased student loan debt
) figure out how much capital you can put towards your business. For this particular step we’d recommend working with a financial advisor
. By self-funding your business you will take on all the risk of the business, not to mention taking funds from all your accounts resulting in penalties. Instead of self-funding the capital fully, try crowdsourcing, small business loans which you’ll want to research heavily to assure you’re receiving the best rate, or finding investors willing to provide capital.
If you take money from an investor for your pizza place, it’s a venture capital investment. This type of investment is usually offered in return for a share in the company and some sort of power position within the company. Therefore, if you do take on venture capital investments understand that the business is no longer just yours.
Once you’ve gained the funds you’re well on your way! Next you’ll setup the internal structure for your business, register the name for your pizza place, setup your Tax IDS, and get the appropriate licenses. Licenses are usually industry, location, and state specific so be sure you’re working with a legal team to meet all appropriate criteria or it could end up costing you. All decisions will have an impact on how your company functions, so be sure that you’re taking every necessary precaution and good luck in your journey.
Refinancing may not be the solution to all of your money problems, but it’s a step in the right direction. When you’re starting out, all it takes is to get going on the right path to continue moving forward. Don’t forget to open up a business bank account to help organize your business funds from your personal funds. Similarly to refinancing you’ll want to choose a bank with transparency, credibility
, and great service.
*Please note Education Loan Finance is not a registered tax professional.