Start-up funds for a new business is precious. When you start a business you need to allocate only a proportion of your start-up funds to inventory. You’ll need to reserve a proportion of your start-up funds for marketing, overhead and other expenses.

How Much Of Your Start-up Funds Should You Spend On Inventory?

There is no exact answer for the amount of inventory you should keep on hand because it varies from business to business. But if you’re just starting out, you’ll be better off to invest only what is necessary in inventory.

Money tied up in inventory is a liability because money tied up in inventory can’t be spent on anything else.

How Much Of Your Start-up Funds Should You Reserve For Marketing?>/h2>

You’ll be better off to reserve at least as much as you put in inventory for marketing so you can sell your inventory.

That doesn’t mean that you spend all your marketing funds at once, but that you reserve that much money to market your products and business.

You do need to spend some up front to research your target market. If you get this wrong, it can doom your business. Don’t think that everyone is your potential customer. Instead try to determine the people most likely to buy your products. Gather as much demographic information as you can about these potential customers. Then use market segmentation to produce a target market profile.

After you know as much as possible about your target market, develop your marketing plan with them in mind. Develop marketing activities and messages that will appeal to them. Plan these for at least your first six months and assure that you have money set aside to implement the plan. Then don’t spend anymore on inventory for that six months than what you planned for marketing.

How Much Of Your Start-up Funds Should You Reserve For Overhead?

And don’t forget your overhead and other day-to-day expenses. If you will pay yourself, that too needs to be considered. Figure how much you you’ll need for overhead expenses during the first six months and reserve it.

Remember that most small businesses fail due to lack of cash flow so set enough aside to at least get you through the first six months, even if you don’t make a penny during that time.

Besides allocating your start-up funds properly, you also need to use your resources wisely. To read about Three Mistakes That Waste Small Business Marketing Resources, click the link.

You may also be interested in my post on surviving the present recession: Five Benefits Of Economic Recession.

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Posted 8-12-08: How To Allocate Start-up Funds
For A New Business

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