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Business set up is much more challenging in an industry that involves a lot of up-front capital. For example, it is much easier to start a tutoring company, where most expenses are service-based, than to start a restaurant, where most expenses are product-based. The more you need to purchase up-front to get the ball rolling, the harder it will be for you to break into the industry. Just because the task is challenging, though, does not mean there aren't avenues for success.
Write a Strong Business Plan
All business success starts with one element: a great business plan. Even more than a good idea, a good business plan is the tool you use to find financing and interest in your new venture. A great business plan is essential in an industry with high barriers to entry. You will need to show your potential investors, lenders and customers that you can deliver value. This is done by not just explaining your business model, but creating financial modeling to show how you will be profitable.
Seek Investors
Investors can take a large chunk out of the initial expense of opening a business. If you rely solely on your own money, you may have to place more at stake than you would like in order to start your business. Furthermore, you may be limited in the amount of capital you can secure. If you rely solely on loans the result is a much more expensive business plan. It is best to mix in some investor funds where possible. You may be hesitant to give away equity in your business. If this is the case, consider structuring contracts that promise equity but limit the degree of control your investors will have in your business's direction. Remember: you can always buy out your investors in the future.
Locate Start up Loans
Nearly every new business will need some seed money from lenders, and capital-intensive businesses require even more than average. Look for loans to help make major purchases, particularly capital purchases like equipment and operating space. It is worthwhile to seek loans through the Small Business Administration, where interest rates can be much lower than those on the private market. Furthermore, you may be able to seek federal funding in the form of grants if you are attempting to secure a government contract or have public service goals in mind for your business.
Deduct Capital Expenses
The best tip for dealing with high capital expenses is simple: deduct them. In your first year as a business owner, you will have the option of either capitalizing or deducting your expenses. Capitalizing them allows you to deduct losses on equipment depreciation in the future; this is the model you must use for expenses after your first year of operation. While there are benefits to this option, deducting the expense in the current year is favorable in an industry with high entrance barriers. In your first year of operation, you may see a near "zero" tax liability due to this option.
