Financial Starting a Business

5 Financial Planning Tips for a Startup

Written by Mike Parsons

In today’s business world, you can come up with a business plan in the evening, and tomorrow morning already have your company. How is this possible? Well, seeing how a substantial percentage of these businesses take place online or require services you are already capable of providing on your own, this shouldn’t come as that big of an issue. On the other hand, if you are planning to start a business that is a bit larger in volume, you might actually need an elaborate business plan. Here are five tips you can rely on when starting a new business.

1.      The cost of starting out

When you decide to start a business, you will have numerous one-time expenses to think about. These are the things like the deposit for the office you decide to lease, the cost of buying or renting the equipment and the taxes required in order to get your company’s paperwork in order. These funds are gathered in several ways like going to a bank or a credit union for a loan, borrowing money from friends and family, or selling assets. Then, you have some 21st-century options, such as consulting an online platform (Kickstarter, for example) to help you with crowdfunding.

2.      Set a budget

You also need to make an estimate of a required budget in order to reach the above-mentioned sales. Here, it is important to take into consideration some fixed costs, like the lease on your office space or a payroll of your employees, but additional variable costs, as well. These variable costs are especially tricky to calculate, seeing how they include things like ads and rebates. Therefore, it is usually best to talk to someone in financial services in order to get a tip or two on this topic.

3.      Ensuring a steady cash flow

Even though the costs of starting a business are probably the greatest single item on this list, you need to think about the operational expenses, as well. Therefore, it is more than vital that you figure out how to secure a steady cash flow. You can later use this cash to cover the expenses of running a business until your business becomes profitable enough on its own. Some people ensure this by finding another source of revenue, while others turn to invoice financing or even apply for some new loans. The last option, however, is a slippery slope since the interests alone can cost you dearly.

4.      Forecast sales

Next thing you have to do when you first start planning the financial aspect of your business is forecast the sales. The best tool for such a thing would be either Google Sheets or MS Excel as these will allow you to make a detailed table of your sales forecast over several first months of doing the business. In case you are joining an already existent industry, you can use figures of other companies, but if you are going out with something completely new, even an educated guess will do.

5.      Income projection

Finally, when you take all of these things into consideration, you will be able to make your first income projection. Luckily, if you have completed previous four steps efficiently, this shouldn’t be that much of a problem. First, you add up your sales and deduct the expenses of your business. Further, you need to deduct things like expenses, interest on any loans you may have and, of course, taxes. All that is left at the end is your income and whether you decide to keep or reinvest it, is completely up to you.

Conclusion

While a lot of people tremble at the very phrase financial planning, as you can see, this is barely a rocket science some make it out to be. All you need is to do research of the industry and try to take into account all your sources of income and all your expenses at the same time. This will give you a more or less realistic assessment of how profitable your idea really is.

About the author

Mike Parsons

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