Before you start a business, you need to know exactly how much money you will need, and where it's coming from.
You can reduce some of the financial pressure by planning ahead. Spend some time estimating your start-up costs before you launch your new business enterprise. It could help to prevent cost blowouts later on.
Estimating your start-up costs falls into two basic categories – Set-up costs and Working capital - which we’ll cover in this guide.
This is what it’s going to cost you to actually get the business up and running. They’re one-off costs that are required for the launch, and which you probably won’t have to pay for again.
It's common for some business owners to underestimate the actual amount of money needed to start up a new business venture. Take the time to work out exactly what your business will need to start which could include:
The best suggestion is to use our cash flow template and complete a ‘pre-start’ list of costs that you’ll need to pay before you start trading.
Once you’ve determined all the set-up costs, the next thing is to work out how much working capital you’ll need, which is the cash you’ll need on day one to keep trading until sales start to cover all your expenses. You may be one of the lucky ones if you have customers immediately, but for most businesses you’ll need a cash reserve for a few (many) months to make sure you don’t run out of cash after launch.
Examples of these on-going costs are:
Fill out a cash flow template with all your monthly costs, add in the likely sales, and then you’ll see how much you are short until you break-even and make a profit. This is the amount of ‘working capital’ you’ll need to borrow or have as back up. Some businesses use 4 months as a rule of thumb.
You can tally this up using a spreadsheet, and it’s also a good idea to sit down with your accountant and go through all the estimates, as they’ll make sure they’re accurate and that you haven’t missed anything out.
If your figures show you don’t have enough money to launch and keep trading until you make a profit, don’t give up straight away. If you can’t raise the extra money you’ll need, you can try:
Now you know how much it’s going to a) set up the business and b) keep solvent while trading. The next step is to work out where that money is coming from. Are you using your own savings, borrowing from a bank, obtaining funds from investors or family and friends, or a combination?
You need to be sure that the costs of setting up your business are feasible, and that you’ll see a return on your investment. It’s important to be as honest and accurate as possible when calculating your start-up costs, because the last thing you want is for your business to be sunk before it gets off the ground.
POSTED IN: Raising Funds,2017,Startup