Why only $5000?
I got this number from Dave Ramsey, me being somewhat of a devotee of the financial guru. I don’t agree with his political views at all, but Dave Ramsey mixes behavioral therapy and kindness with great teaching and deep financial knowledge to give a great learn. He suggested that most of us regular folks should spend no more than $5000 to start a business.
I think he said this for these reasons:
- Going deeply into debt is VERY stressful. Running a business is already stressful, especially if you have uneven cash flow, employee problems or are just learning the ropes.
- If you are paying more than that you might be getting over your head. If you are an advanced business manager you may be able to handle a big business right off the bat, but a small business, with no employees, is probably the best way to start. You have enough to learn without throwing a can of gasoline on the fire called “employees”.
- You might be getting sold down the road. Many companies and business brokers make a living getting people to buy expensive business franchises and mature small businesses. Often these are not worth the money that you are paying.
- Speed to start making money. You can probably scrape together $5000 together a lot faster than the $50k that many franchisers require you to start with. Many contractors just need $5k for a bond to get going. If they already have the skills, the truck and the tools, then all you need is a free Craigslist ad to get going, assuming your work is in demand.
- Testing. If you are not sure there is demand for what you want to do, a small startup test of the market for $5k will allow you to test to see if there is without losing too much money. Your risk is lower and more likely you will stretch your dollar to make sure it works.
How I started a $1 million a year service business on $5000
My husband and I and his initial business partner started a small service business over 20 years ago on $5000. It was all we could scrape together at the time and it ultimately led to grossing over a million a year in that industry. Along the way we did take some cash out of our home to grow the business. We probably took out more than we should have but loans were easy at the time, so I guess we took out loans rather than making hard business decisions a few times.
I have tried to start several businesses on $5000 or less.. Mostly I have been successful at making money. The times that I spent more than that, I fell victim to “overcapitilization” which is a nice way of saying that people with a lot of money to blow on a business startup get lazy when it comes to hashing out and testing a business model.
Tips for starting a small business for $5000 or less
- Get together $5000 in cash. Live as simply as you can to get this done. Don’t use credit.
- Make a list of all your skills, especially the ones you know you are extra good at and enjoy. Brainstorm with no holds barred and no criticism of the ideas.
- Look at the list and figure out which skills people would probably be willing to pay you for.
- Research what the going pay is for those skills and decide which one pays the best relative to the ones you enjoy doing the most and you think there is demand for.
- Make a decision which one to test.
- Do a small test with a free craigslist ad to see if there is demand.
- If there is, get started creating a small business!
Here are some books from Amazon on how to start a business.