Profiles

To Borrow or Not To Borrow

A Tale of Two Start-Ups

By Kai Fawn Miller

You’ve got this cool idea for a business, and everybody thinks you’ll be a great success. You’re ready to dive in, when someone mentions the "M" word — money. Even the smallest start-up needs cash, but where will you find the funds?

If you’re anything like Chrissy Frentz, owner of Snowball City, the answer is right under your nose. Seven years ago, this Laurel, MD, native began a snowball stand in her parents’ garage that has since become the most popular summer hang-out in her neighborhood. Best of all, she did it with her own cash.

Saving Habits

"Actually, I paid half and my dad gave me the other half. I’ve always been a really big saver," Chrissy, now 21, says. "I was always cutting lawns, babysitting, and taking care of people’s pets."

Chrissy’s partner, her 20-year-old sister Cathy, agrees. "I’ve never met someone quite like Chrissy. She thinks about every penny she spends and makes sure it’s something she really needs."

While her first-year expenses were fairly low, Chrissy needed money for supplies and business fees. This meant that, in addition to building the snowball stand in the garage and getting electricity and water, Chrissy and her parents had to be approved by the zoning committee and the health department. They also had to obtain a sales tax permit before she could open for business. Start-up supplies included cups, napkins, ice, plastic spoons, flavored syrup, and toppings.

All in the Family

Cathy bought into Snowball City the second year by working without pay — all her earnings went toward purchasing the partnership. With the help of Chrissy and Cathy’s two younger sisters, Suzy and Diana, Snowball City has become a true family venture. After helping much of last summer, Suzy, 16, is hoping to buy Chrissy’s share this year, and Diana, 13, will take over Suzy’s duties of tending the stand during the slow times this summer.

For their help, the two younger sisters are paid an hourly wage, just as they would at any summer job. "We just try to be fair," says Cathy. "They’ve never had a problem with what they’re paid." When Suzy buys out Chrissy’s half, she’ll also start getting a portion of the profits.

Anybody Want a Loan?

Dan Villa, 17, owner of Pintlar Delivery Service in Anaconda, MT, used another method to fund his start-up. He received a loan for his business from the Anaconda Local Development Corporation, or ALDC.

"The ALDC contacted the teacher in charge of the School to Work program and said they were willing to give a loan for a youth business," Dan says. "They narrowed the choices down to about five students, and I was the only one who was really serious about starting a business."

The organization’s only condition for the loan was approval of the business idea. "I went through all of my options, then decided that the delivery service was the best way to go," he says, explaining that only a small amount of stores and restaurants in the Anaconda area provide delivery services.

Extra Credit

In order to determine the loan amount, Dan provided the ALDC with an estimate of his start-up and operating costs. The $500 he needed was quickly approved.

While he is now committed to repaying the money to the ALDC, Dan believes the loan was his best bet. "This helps me establish credit," he explains. "I think the only reason I wouldn’t want a loan is if the interest rate was too high — you’d end up paying that back for years."

"I really think the payments make you a more responsible person," he adds. "You can’t afford to mess up a loan, or you lose everything." Whether your strength lies in saving your own money or taking responsibility for monthly payments, every young entrepreneur has funding options to consider. Which is best? Only you can decide.

Got the Cash?

How much money does it take to start a business? A service-based business such as window washing or dog walking can cost as little as $25 to start. However, starting a product-driven business like Snowball City can cost up to $1,000 or more because of the cost to produce the goods.

Follow these steps to determine exactly how much money you need for start-up.

1. Describe one unit of the product you are selling (one car wash, one dozen cookies, one pair of earrings, etc.).

2. Make a list of all the materials, supplies, and equipment it takes to produce your product. Research the cost of each item and determine the cost of goods for one sale.

3. Make a second list of expenses to run your business such as advertising, utilities, rent, or phone. Estimate your total operating expenses for one month.

4. Estimate the number of sales you believe you can make in one month. Multiply the estimated monthly sales by the cost of goods per unit. This is your monthly cost of goods.

5. Add the monthly cost of goods and the monthly operating expenses together. Now you know the amount of money you need to get started. The profits from the first month should be used to run the business after that.