How Should You Prep Your Finances
for Your Next Business Opportunity
It’s exciting to think about starting a business out of something you are passionate about. It could be that you love creating a certain product or you enjoy connecting with clients and helping them fill their needs. Some people dream of having their own business so that they can be their own bosses and have the freedom to do what they like.
Owning your own business can certainly provide you with all of these things. However, too many people spend too much time daydreaming about exciting things and not enough time planning the nitty-gritty details. However, these details, and especially the ones regarding your finances, are crucial in helping a business find success. You can launch without a plan, but if your finances aren’t properly managed, then you will soon be in trouble. Here’s how you should prep your finances for your next business opportunity.
Start With a Business Plan
Your business plan will be your guide to how you will run your business. You need to make sure that every aspect of your plan is included. You need to map out where you will get materials or manufacture your product, how you will ship it, how you will market it, and how much it will all cost. You need to have projections for your expenses and your revenues included in your plan that clearly show how you will make a profit. If you develop a detailed plan and it doesn’t show that you will make a profit, then tweak it or start over. Examine every aspect and see where you can save money or make more money.
You should not be overly optimistic about your plan. If you are, then you run the risk of overextending your initial investment without the revenue coming in to cover it. Be realistic if not conservative so that there’s nowhere to go but up. While your business plan is the document you need before you start out, you can also remake it into an annual plan as your business grows and develops.
Prepping your finances means creating a detailed budget that takes everything possible into account. This is also a big part of your business plan. Your budget needs to forecast your revenue and expenses for at least the first year, but it should also have some general projections beyond that. For your expenses, including fixed costs such as your rent, utilities, salaries, and business insurance, just to name some examples. You will also need to consider variable costs, which can be materials, fuel, overtime pay, or anything that could fluctuate throughout the year. That first-year budget will also include capital costs such as equipment and set up costs.
Revenues are trickier since it’s hard to accurately project what you will make since you haven’t been in operation yet. However, you can look around at other similar businesses and see how they are doing. It might be a good idea to set your revenue projections as your ultimate goal minus a percentage. That way if you reach your goal it would be fantastic, and if you fall short you will still be in good shape and not have overspent. A budget can be used throughout as a barometer of your success to see if your business is running efficiently and if it is making enough to sustain itself.
With a solid plan that makes a case for your business being viable and profitable, you can then go out in search of financing. Finding help with your startup costs will spread the risk around so that you aren’t the only one financially responsible for your business. Many entrepreneurs try to self-finance, and that can be just fine if your potential startup costs are low, but finding others to help with the costs is never a bad idea.
Many people try with their friends and family first. These are people you can trust and rely on, and they trust and rely on you. You can offer them profit incentives or just borrow the money if they are willing. Do not try to do this without a solid plan in place, and do not get offended if they turn you down. You do not want to ruin or damage relationships over money.
Another option is to pursue government grants. These do not have to be repaid, which makes them very valuable. They are given out to businesses that can show the economic benefits of their existence. They will need to see your business plan as well. Finally, you may want to secure a business loan to help finance your business. They often have reasonable interest rates and you can start to pay back when you start to make profits.
Key Performance Indicators
Once you have your business plan, budget, and financing ready to go, you should set yourself some key performance indicators based on your plan and budget. These are the figures that you will most use to measure the success of your business and whether you are on the right path. These important metrics are considered the drivers of your business. They are the final numbers that show how well your marketing and other efforts have been paying off.
The three most commonly used indicators are sales, costs, and working capital. Working capital is always tricky since it indicates your cash flow. You may be bringing in big sales, but if you are waiting for invoices to come in and playing catch up, then you may find yourself in trouble trying to pay your bills and salaries. Having enough financing upfront to not just start your business but also to grow it in the initial period will help with this. If you are under on your sales projections or over on your costs projections, then you need to pivot right away to try to improve or you will soon find yourself taking on water.
If you think owning a business is the right choice for you, then there is nothing stopping you from taking that step. However, you need to be able to not just launch but also sustain your business as you work to grow it. By preparing your finances ahead of time, you will give yourself a great head start.