How Much Money Should I Invest In My Startup?
“Do I bet the farm or hold it all back?”
We often wonder whether every dollar of our savings should be going toward our startup or stay in the bank safely tucked away for our future security. On the one hand, if we don’t bet our cash on our startup, we’re starving the very thing we need to grow. On the other, if we spend that money, we’ll never be able to sleep at night knowing we have pulled away our safety net.
So do I spend it or save it?
Don’t spend it all. Seriously, — don’t. There’s a point at which depleting all of our savings and personal cushion works against us. We start shifting our focus from “growing the business” to “surviving personally” (more than it already is!) and at that point, we’re in a downward spiral.
How much do I keep in savings?
If possible, at least a month’s worth of expenses, and hopefully two or three. That said, most people don’t even have that much savings without their startups, but if you’re one of the few who does, that would be the “minimum viable savings”. The savings should be enough to get you to the point where you could get another job if things go totally sideways (and they often do!)
When will I be able to put those savings back?
Plan on “probably never” because statistically that’s the most likely outcome. Investments in a startup need to be considered “found money” if that money comes back. This isn’t a bank loan that’s got some level of security. This is a totally unsecure investment that’s about as risky as it gets. If you pull money out of your 401k, for example, assume you’re permanently changing your retirement plan.
What does that say about my commitment if I don’t invest it all?
It says that you’re committed enough to invest your personal capital but smart enough to understand that life isn’t guaranteed, but your bills are. The more we leverage ourselves personally as founders (and we all do), the more we force ourselves into strained relationships and regrettable decisions. A founder with some cushion is a more dangerous founder than one that is completely desperate because she has options, not choices.
Want more help in figuring out your business finances? Check out our Business Cost Sheet Template. This cost sheet will help your business reflect the cost of the items and services you need to pay in order to create each piece in your collection. Along with the cost sheet we also offer tips and give you the 101 on pricing, costs, margins, packaging and markup. We know costing and pricing your fashion line can feel overwhelming, but we are here to help!