Project Funding and Business Plans

Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is under capitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have no less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of under capitalization.

In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners under price their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem.

In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs and taxes. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape

Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly.

What can I do to combat these problems

As with everything, start up capital is the best way to assure that you are going to have a successful 1st year, or subsequent year. In today's economy there have been enough examples of companies that have been open five, ten, fifteen years or more going under due to under capitalization.

At E & D Services we strive to help eliminate these common thread problems. As mentioned before, lack of solid planning has to do with the majority of business failures and not the economy.

Many people find that to be a shock but its proven that 9 out of 10 small businesses fail in the first two (2) years, and its not a coincidence that 9 out of 10 small businesses don't have professionally tailored up business plans. Let us be there to show you how to be part of that last 10% and give you the tools you need to sound planning and required capitalization.