Module 6 Discussion: Initial Post
What It Takes to Open the Doors: Startup Costs, a Microloan, and a Break-Even That Changed My Plan
Working through the finances for my fictitious business, SafeStep Home Modifications, changed one of my earlier assumptions, so I want to share the numbers. The SBA suggests listing every startup cost and separating one-time expenses from ongoing ones (U.S. Small Business Administration [SBA], n.d.-a). For SafeStep, the one-time costs are a used cargo van at $38,000, tools and a starter inventory of fixtures at $9,000, an insurance deposit of $4,000, licensing and permits at $1,500, a launch marketing budget of $3,000, and scheduling and accounting software at $1,000. I added $30,000 of working capital, about three months of fixed costs, because customers pay on completion and some assistance programs pay slowly. The total is $86,500.
For funding, the owner will contribute $30,000 in savings, which also shows lenders the owner has something at stake. The rest can come from debt. Under its microloan program, the SBA funds nonprofit community lenders that lend small businesses as much as $50,000 to start or expand, and those lenders also offer management and technical assistance (SBA, n.d.-b), which a first-time owner could use. A $45,000 microloan, plus about $11,500 in dealer financing on the van, would cover the gap. I chose debt over bringing in an investor because the owner wants to keep control, and the business should generate steady enough cash to repay a small loan.
Then I calculated break-even. If the average job brings $1,250 and materials cost 32 percent, each job contributes $850 toward fixed costs. Monthly fixed costs, including a modest owner's draw of $5,000, the installer at $4,800 with payroll costs, van and insurance, the loan payment, marketing, and other expenses, total about $12,400. Break-even is $12,400 divided by $850, or about 14.6 jobs a month. My first-year goal of 15 jobs a month, which I set in the management module, turns out to be almost exactly break-even, not a profitable target. That is useful to know now. It means year one pays the bills and the owner's modest salary but builds no cushion, so the plan should either raise average job value by promoting the stair and entry package, or accept a thin first year and plan for profit when the second crew is added (Nickels et al., 2022).
Question for the group: when your break-even analysis showed something you did not expect, did you change the goal, the price, or the cost structure?
References
Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2022). Understanding business (13th ed.). McGraw Hill.
U.S. Small Business Administration. (n.d.-a). Calculate your startup costs. https://www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs
U.S. Small Business Administration. (n.d.-b). Microloans. https://www.sba.gov/funding-programs/loans/microloans
How this BUS 210 Module 6 example is structured
Aspen's catalog describes BUS 210 as covering finance applied to real situations and a fictitious business outline. Aspen does not publish module deliverables, so check your classroom for the exact prompt. This example lists startup costs, explains funding choices with an accurate program description, calculates break-even, connects it to earlier goals and asks peers a question.
BUS 210 Module 6 questions, answered
What does the BUS 210 Module 6 discussion usually ask for?
Discussions in this part of BUS 210 often ask how a business would be financed, including startup costs, sources of funds and basic financial analysis. Aspen does not publish module deliverables, so your classroom's instructions govern.
What is an SBA microloan?
A loan of up to $50,000 made through nonprofit intermediary lenders with SBA funding to help small businesses start or expand, often paired with business assistance.
Why include working capital in startup costs?
Because a new business pays expenses before customers pay it, a reserve covering a few months of fixed costs keeps it running while revenue builds.
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