I define adequate personal capital as 6 months worth of after tax expenses in easily accessible liquid form, plus 10% of your yearly income saved (each year of your working life, start at 20) and invested. So, if you are fifty and have averaged 100 thousand bucks a year, you should have at least 300,000 in net worth plus a reasonable rate of interest to have compounded that obviously higher. This is what you must have at a minimum in my opinion. If you don’t have that, then stop. I haven’t seen too many successful businessmen or women who overspend and do not save. If you can’t save – work for someone else!
If you are still reading and have saved your money, the next hurdle is this: You probably need to go the first year without taking anything out of the business, and still maintaining your cushion of 6 months. I don’t care if you spend your whole bankroll on the business if you are the risky type (I’m not and I don’t recommend this but it is your money to risk) but leave that last year and a half worth of capital out of the business. Trust me, you will probably need it. By the time you start making a little money after that first year, you will be down to 6 months cash cushion. If you can’t see that you will be making money at that point – well – you are in an emergency situation and need to prepare for trouble.
OK, so you know people who started with nothing and are rich. Good for them – but most businesses fail for lack of capital so you have been warned.