From the course: Finance Essentials for Small Business

Startup financial needs

From the course: Finance Essentials for Small Business

Startup financial needs

- Even as we speak, a friend of ours is getting into the long distance trucking business. - He owns a truck and he contracts with a driver to drive the truck for him. - He finds his customers in companies that want to ship goods long distances but don't have a big enough need to hire one of the large trucking companies. - Our friend says that the most difficult part of his business is finding the right customers who want their goods shipped to the right place and are willing to pay the right price. - So the scheduling and contract negotiation functions of his business are very interesting, but those are topics for another day. - Now let's talk about the financing for this small business. - [Man With Glasses] Our friend originally thought that he could get into his trucking business with 35 thousand dollars, he would use this money to buy a used tractor, the front end of the truck, the part where the driver sits. - But then he learned that used trucks that he could buy for 35 thousand wouldn't be compliant with California mission standards, so the set of potential shipping jobs that he could get, staying out of California, would be dramatically limited. - [Man With Glasses] That meant buying a newer truck, for 52 thousand dollars, so our friend had to secure even more start up financing. - [Man Without Glasses] But wait, he wasn't finished, he also needed to buy a trailer, another 10 thousand, as well as tarps, straps, and chains for another 25 hundred dollars. - So in total our friend needed 64 thousand 500 dollars to get going, fortunately for him, he had access to that much capital. - But if his original supply of capital had been limited to say, 50 thousand dollars, the entire business venture would have died right there because a lack of financing. - Would be small business owners often don't think through all the costs of getting their business started. - As a result, many small businesses with good ideas die because of an insufficient initial capital.

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