Seth Henry

Every new business requires start-up capital. As a business owner, you face the fact that it takes money to make money. The good news is, starting a coaching business takes less money than most other start-ups.

Many people approach money matters with dread, or consider them tedious. But the most successful business owners have made money their friend. Remember that by working out the money plan, you are serving the vision of your business. The more you do it, the easier it gets. You may even find yourself having fun with it!

So what will it take to get your business started? You will need to buy the tools of your trade. You would be wise to keep a cash reserve for contingencies. And you will need to make sure the family bills are covered while you build your revenue.

To get a handle on how much you will need, look at these three areas: tools, cash reserve, and living expenses.

The tools of your trade include at least:

• Your home office setup. For ideas on what you will need, see Your Prosperous Office.
• Coach training.
• Your initial marketing expenses, such as letterhead and business cards, mailings, and website development.

Depending on how you do things, your toolbox may include any number of other items, such as:

• Mentor coaching.
• An email campaign company.
• A merchant account (so you can accept credit cards).
• A shopping cart service for your website.

Some of these expenses are one-time start-up costs (furniture and equipment, website development). Others are recurring monthly costs (phone and Internet service, website hosting, office supplies, mentor coaching).

Make as complete a list of these expenses as you can. Consider everything that needs to happen in your first year in business, and add to your list every item that will cost money. For help envisioning your first business year, see First Year Focus.

Take the time to research what these expenses will actually cost you. Depending on your list (and other factors like where you live), your start-up expenses may be anywhere from a few thousand dollars to $20,000, and your monthly recurring expenses might range from $100 to $1,000.

Once you have your list, the best way to proceed is to complete revenue and expense projections for your business. Prosperous Coach has a spreadsheet template available for download that is specifically designed for a coaching business. Go to Simple But Essential Business Plan and download the business plan kit.

If you're not ready to do projections now, your list will still give you a grip on the expenses of your coaching business, both one-time and recurring. Step two is to look at your average monthly recurring expenses to determine a cash reserve.

Experienced entrepreneurs recommend keeping a cash reserve equal to several months of recurring expenses. The point of this is to be ready when things don't go according to plan. The most common way for businesses to fail is by running out of cash.

Finally, consider the monthly household expense budget for your family. If you need the income from your coaching business to pay the bills, you will need enough cash to cover those bills until your business income ramps up to that level. Or else you will need to reduce those bills to the level of cash you have available. Of course, if you can cover the household bills from another source (such as a spouse's income), you can skip this step.

Now you are ready to create a start-up budget. If you have done revenue and expense projections, you can see exactly how long it will take your business income to get to the point where it covers your monthly expenses: your "break-even point". If you have not done projections, make an estimate of when you will reach break-even. Figure the break-even point based on business expenses alone, or business plus household, depending on your situation.

Your start-up budget is the sum of three numbers:

• your one-time start-up expenses;
• your cash reserve; and
• the amount of monthly expenses you will have to cover before reaching the break-even point.

Adding these three numbers gives you the amount you will need to invest in your business before it starts paying its own way. Remember that this is an estimate. Things may (and probably will) change.

Where are you going to find that money? Here comes the part that some new coaches may find hard to hear. The best way to fund your business is from your personal savings.

The vast majority of new businesses are funded out of the personal savings of the founder. Many, especially the ones you hear about, also use other people's money to get started. But the ones you hear about are mostly start-ups that turned into big companies. That kind of fast-growth enterprise has vastly greater capital requirements than your coaching business is likely to have.

To see why your savings account is the best place to get financing, consider all the possible sources for capital to invest in your business. There are only three:

• your own savings;
• money you borrow; or
• money you raise by selling a percentage (equity) interest.

Don't even think about raising capital for your coaching business by selling equity. The legal compliance costs of this approach are out of range for raising the amount of money we are talking about. You have to be well into six figures of outside funding before this becomes a viable option. Selling equity without jumping through the legal hoops is asking for trouble. And someone else owning part of your coaching business is probably not what you want anyway.

For borrowed capital, the most common sources are:

• friends and family;
• credit cards;
• second mortgages; and
• Small Business Administration loans.

Many business startups do rely on loans, but before you go down that road, consider the drawbacks:

• Debt has to be repaid on a schedule, with interest. If you are unable to pay because your business does not ramp up as planned, there will be painful consequences.
• Borrowing from friends or family puts you in a dual role that is awkward for most people, and can damage the relationship if not handled impeccably.
• Credit cards charge exorbitant rates of interest.
• Second mortgages put your home at risk, and many financial advisers counsel against using a long term (30 year) obligation to finance a short term need like a business start-up.
• Small Business Administration loans (in the US) generally are not a useful source for a start-up coaching business, because they are geared to larger amounts and more conventional businesses.

This leaves your personal savings as your best source of capital. Using your own money offers the great advantage of independence. You will be responsible only to yourself for the financial success of your business, and you will learn first hand one of the most fundamental business lessons: that growth comes through investment.

If you don't see how you can come up with the money, go back to the plan. How can you cut back on expenses now and put more cash aside to invest? How can you reduce your planned business expenses and bring revenue in faster? Do you have resources you haven't considered that could be converted into cash?

If you haven't done revenue and expense projections yet, download the Simple Business Plan Kit, and invest your time and energy there. Working with the numbers in a spreadsheet format is the best way to organize your thinking.

If you are starting with debt rather than savings, or just looking for ideas on how to save more aggressively, a good place to begin is Oprah's Debt Diet, a free online program that has helped many people get a better handle on their finances.

With rare exceptions, being a coach means being an independent business owner. Funding is the life blood of any small business. Meeting the funding challenge with a smart plan will take you far on the road to success.

Seth Henry is a freelance writer based in Colorado. For twenty years, he ran a solo business law practice representing entrepreneurs and technology companies. His writing focuses on holistic innovations in culture and the economy.

Copyright © 2007 Seth Henry. All rights reserved.

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