Starting a business can be an extremely exciting prospect, particularly when you’re looking to build your own empire that will keep your family financially secure for generations to come. The problem is, that many start-ups struggle financially because they don’t build a good financial foundation for that business.
In order to successfully finance your business, it’s essential to know a realistic budget and what financing options are open to you. As this will help you make the best choices to make your business a success:
Know Your Budget
Before you decide to start a business, it’s incredibly important that you first develop a budget plan for that business. This plan should take into account any start-up or capital costs you might have, such as equipment or training, as well as the costs you’ll incur for running your business, including rent and electric bills. You should also include your forecasts for your sales and where your cash position will be at the end of every month.
A budget needs to be realistic, so never just forecast that you’re going to make thousands of profit a month when this might not be a case. Plus, you might find that you get paid later than you hoped or that your costs were higher than you thought. A well-researched and realistic budget will show you where you are financially and what investments you might need for your start-up.
Separate Business and Personal Money
When you first start a business, it can be tempting to dip into your own money to keep things going. However, this is a dangerous way to run your finances, as you may find yourself short for your own personal bills like your mortgage. Instead, have a separate business account away from your personal money.
If you need some money upfront, you can instead try finding a new credit card for your start-up. You could look into a specific reward card or 0% purchasing on credit cards, which is useful when buying more expensive items – as this will spread the payment over several months without having to pay interest. This will allow you to pay a bill or buy essential equipment and then pay the credit card off when your funds become available.
Have a Contingency Fund
Before you commit to starting a business, it’s essential that you have a contingency fund in mind. This will help cover your business if disaster strikes, meaning you won’t go bust. Perhaps numerous employees are unable to get to work or you need a large sum of money to repair or replace essential equipment, your contingency fund will help you out so that business operates as normal.
The size of your contingency fund will totally depend on the type of business and its unique needs. However, as a rule of thumb, most start-up businesses should look to put away at least 10 to 20% of their overall budget in a contingency fund.
Do You Need a Loan or Investment?
Once you have a realistic budget and you know the size of your contingency fund, it will be time to decide whether you need a loan or investment money in order to start your business. For most people, you will need outside investment.
Business loans, if approved, will give you money over a pre-agreed time and will involve interest rates, which can make it expensive for business owners. You will also usually need a personal guarantee for your loan.
If you can’t or don’t wish to get a bank loan, you may wish to consider crowdsourcing an investment. This method is particularly popular for start-ups in the entertainment sector such as books or games as it allows the public to invest in a product that they would like. Crowdsourcing is less risky for investors as it involves a large number of people giving a small amount of money in exchange for a product along with a something like business shares.
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