Published on January 2nd, 2019 | by Bibhuranjan0
Finance Plan for Starting a New Business
Starting a new business is an activity that brings many different rewards. The type of the reward that matters the most, nonetheless, depends on the person in question. To some, being their own boss is what matters the most. This includes flexible hours and no authority above you. Others do so for the income. You see, the ambitious ones don’t mind the inevitability, as long as there’s no top-cap to how much they can earn. Moreover, what appeals to all these people is usually the thought of being self-reliant, as well as being the one to determine whether the business succeeds or not.
Regardless of what drives you forward, you can’t start a business on ideas, dreams and wishes. In order to do so, you need to acquire necessary funds. Nonetheless, the issue of how much money you need, where do you get it from and what you do with it from that point on may not be a simple one to answer. To help you get at least a partial answer on this topic, here is a brief rundown of a potential finance plan someone starting a new business could use.
The first thing you need to do is make a budget. However, budgeting is impossible without knowing all the starting expenses of your business. Now, due to the nature of your business, there are some expenses that might not be consistent while others might vary, yet, there are some outcomes that you can rely on.
First of all, you have the business registration fees. Nowadays, this can be done online at a reduced cost and a reduced necessary effort that needs to be invested in order to gather the paperwork. Still, this is an unavoidable expense. Same goes for business licensing and permits. In some scenarios, you also need to consider the issue of IP (intellectual property) and all that this entails.
In order to start with your business, you need to consider operating expenses, as well. This consists of the starting inventory, rent deposits, down payments on property and equipment, as well as some additional setup fees.
Prepare in advance
Now, there’s one thing that a surprisingly large number of first-time entrepreneurs seem to completely forget about. Namely, your profit won’t be able to cover the first several months of your operational expenses. This means that you’ll have to pay for salaries (including your own), rent or mortgage, utilities and supplies out of your own pocket (instead of using a portion of your income for this). The only way in which this can work is if you prepare a healthy cash reserve in advance. Those that forget about this usually find themselves in a scenario where they have to find an alternative solution to their cash flow problem. This is definitely possible but it’s much easier to be proactive than reactive.
As soon as you cover the above-listed two items on the list, you should know, more or less, just how much money you need in order to start a new business. Therefore, what you need to do is dedicate yourself to the delicate art of fundraising. The first and the most obvious course of action is to apply for a loan. Nonetheless, this isn’t as easy as it sounds. Fortunately, some organizations like OurMoneyMarket provide vital loan statistics that can help you get much better terms.
Other than getting a loan, you can borrow money from family and friends. You can also go for crowdfunding, especially if you’re a tech startup or small business. Finding a partner, selling an equity in your company or looking for venture capitalists to invest in you are other options you have available. Just keep in mind that the source of this initial capital determines more than just where you get the money. It also affects the way in which your business works, your monthly payments and the control that you have over your company.
Preparing for a crisis
Some would say that optimism is the most necessary of prerequisites for a potential entrepreneur. After all, who would in their right mind venture into something they expect to fail from the very start. Nevertheless, blind optimism is dangerous and you need to be aware that you might land in crisis at one point. This is why it’s good to have an emergency plan from the very start. This will help you recognize a crisis as soon as it happens. Like always, by recognizing early signs you can get a much better deal out of this scenario. Recognizing a scenario where you’re not making enough money, knowing how to cut down on your expenses and being ready to introduce change are just some of the things worth thinking about.
Time is a resource
The last thing you need to keep in mind is something that not a lot of first-time entrepreneurs seem to realize is the fact that time is a resource. This means that if you waste two weeks doing something in order to save a small amount of money, all that you’ve achieved is likely a substantial net loss. Sure, the time of your employees is an easily quantifiable resource, due to the fact that you know their hourly rate but what about your time?
As an entrepreneur your time might be A) more scarce, B) more valuable and C) easy to underestimate. Remember, sometimes, it’s worth your while to pay a bit more (even when on a tight budget) in order to have something handled quickly and efficiently. The simplest way to rationalize all of this is to say that each minute of your time has a monetary value
Starting a new business can be an exciting new adventure, yet, how likely you are to enjoy something that loses you money, causes you a lot of stress and keeps disappointing you, day after day. The best way to avoid this is to learn how to manage your businesses’ finances in the best, most efficient manner. With the above-listed five tips, you might be able to do just that.