How Much Money Do You Need to Start a Small Business?

Before you start a business, here's how to figure out if you're financially ready.

If you're interested in starting your own small business, you might be wondering how much money you need. Lots of entrepreneurs have this question, because it's much harder to build a successful business without enough funding. Here are some considerations to help you decide how much to save before launching your business.

How much money do you need to start a small business?

Technically, you don't need any money to start a small business. Although it's more challenging, there are ways to start a business with no money. However, this doesn't mean you're okay to start a one with $0 in your savings account.

At the bare minimum, you should have an emergency fund with three to six months' worth of living expenses before starting a business. Because of the current economic uncertainty, some financial experts are even recommending larger emergency funds. If possible, having six to 12 months of emergency savings is recommended.

If you don't have an emergency fund yet, then that should be your priority. Everyone needs this to protect themselves from unexpected financial issues.

When you're excited about starting a business, it may be tempting to jump into that and put the emergency fund on the back burner. But if something does happen, like your car breaks down and you end up with a costly repair bill, you won't have any money saved to cover it. Instead, you'll need to borrow money with credit cards or a loan. It's hard enough to create a successful business when you're financially stable. Adding debt to the mix just makes it more difficult.

Consider starting a business savings fund, too

Once you have an emergency fund, you're in a much safer position to start a small business. But to give your business a better chance of success, you may also want to build up some savings before you launch it.

Remember that your emergency fund is just that -- savings for emergencies only. It's not an expense account for your business. If all you have is your emergency fund, then you'll need to get your business off the ground with no money.

That's certainly possible, but it's not ideal. No matter what type of business you start, even if it doesn't have any major startup costs, it's going to be easier if you have cash to cover expenses.

Let's say you're good at home repairs, and you plan to launch a handyman business. You might be able to start that with no out-of-pocket costs if you already have the tools. But what if you want to make a website so potential clients can find you online? Or what if you realize that you need more equipment so you're able to take on more lucrative jobs? Having money saved could help your business grow much faster.

If you can put together $500 to $1,000 in business savings, either in your own personal or business bank account, that could be instrumental in covering early expenses. You won't need to bootstrap absolutely everything or borrow money for your business.

The one thing every business owner needs

It doesn't take a lot to start a small business, but an emergency fund is a must-have. You want to be able to devote time and attention to your new business, and that's tough if you also need to worry about repaying an unexpected car repair bill or medical expense. Other than that, you don't need any more money saved, but a business fund with some money for startup costs doesn't hurt.