During the early planning stages of a business you should take into account money. You will have to decide how to arrange financing for the various stages.
Your own money
The first question that arises is: Do I need my own money to set up a business? The answer is yes.
You need money to cover immediate start-up costs and must be able to cover the first six months of operation, while possibly no money is earned.
Are you prepared to invest enough money, time, and other resources in order to get a business off the ground?
- How long will it take to have your services or products available?
- How much money do you need, to set up the business and run it for at least six months, without income?
- How long will it be, before the business can make a profit?
- How will you finance the company, until it makes a profit?
- Will you need a loan from a bank or other source?
Investors want you to invest
If at some point you decide to raise money for your venture, investors will always need to know that you are taking as much risk as they are, by investing a considerable sum of your own money. This also proves your belief in your business. An investor wants to be sure you can not simply walk away when the going gets tough, because you have little to lose.
- Choose finance options carefully: Learn about types of finance so you can decide which best fits your needs.
- Understand borrowing options available to small businesses. These can include commercial mortgages, bank loans, and finance from family and friends.
- Government grants: Check what government support and secure grants are available for start-ups.
- Equity finance and sharing: Determine if your business might benefit from equity finance, issuing shares, or floating on the stock market.
- Tax allowances: Discover if your business can claim tax allowances on certain investments or purchases.
- Budgeting: Managing a budget is an essential part of planning your business.
- Profit and loss: Your business accounting includes the financial records you have to keep to report profit and loss.
- Balance sheets show liabilities and assets, and help assess your business’ financial health.
- A record-keeping system includes what you must record and for how long.
- Business performance: Get help to assess how your business is performing.
- Investment appraisal: Techniques for assessing potential investments.
- Pension planning: During the excitement of establishing your business it is possible to forget to check out pension planning for the self-employed. Learn how pensions work, and choose a personal pension scheme.
- Work with an accountant: Find the most reliable accountant available, by getting recommendations from people you trust. A good accountant with integrity will not only save you money, but can keep you in business over the long run. You will not regret this investment.
Watch your cash flow
Without cash flow there is no business, so the more you understand about managing business finances, the better. Again, be kind to yourself and work with a trustworthy accountant.
Cash flow is the lifeblood of a business
- Managing cash flow: Avoid cash problems by learning how to manage cash flow.
- Identify potential cash flow problems by using business plans and cash flow forecasts.
- Payment terms and invoicing: Devise an invoicing system and payment terms, for a healthy cash flow.
- Customer credit checks and credit line: Make sure customers pay their bills on schedule.
- To lease or buy: Learn about the pros and cons of leasing or buying outright.
- Choosing and managing a bank account: What to consider and available benefits.
- Credit and debit cards, pre-paid and charge cards can improve your business’ purchasing flexibility, and monitor expenditure.
- Accepting online payments: Learn how online payments work.
- Foreign exchange risks: Importers and exporters need to consider implications of exchange rates fluctuations and how these impact their business.
Accounting and bookkeeping
Financial accounting is the backbone of your business. There is no getting away from tax laws and other authorities, who need to be kept in the loop regarding your company’s financial activities.
- Do you have accounting skills?
- Do you have accounting services available?
- Can this be entirely outsourced, to save the learning curve regarding tax codes and regulations?
At the begining, you can handle many of these tasks, and even find forms and advice online that will serve you pretty well. However, as the business grows, and you become preoccupied with wearing the many hats an entrepreneur must wear, it may be important to outsource to an accounting office that provides such services for a fee.
Set up a financial support team
When you understand the complexity of the financial side of your business, do yourself a big favor and get some support:
- Get an accountant: Choose a good accountant with integrity to maintain your accounting, financial, and taxation requirements.
- Enlist a lawyer so you can supervise legal issues on schedule and correctly.
- Find an insurance advisor and present your risk by compiling a clear report of your safety and health risks.
- Debt problems: Specialist debt and financial organizations can help you hammer out your money issues.
Do you understand your insurance needs as a business owner? If you decide to take on employees, this becomes even more important.
The right insurance for your business
- Insure your assets and business: Learn about how to choose an insurance agent, along with the types of commercial insurance available to protect your business.
- Insurance and your business: Learn how insurance can offer protection against consequences of injury, illness, or death– yours or that of your partner or employees.
- Liability insurance: The kind of insurance required by law to cover your legal liabilities.
- Insurance for international trade: Insuring against potential risks of global trading.
Since things are ALWAYS more expensive by the time you are finished, and taxes etc. tend to undermine your resources, create an “affordability buffer zone.” Whenever you desire to make a purchase or investment, use this unwritten rule:
- Up the widget price by 20 %.
- Prepare funds higher by 20-40 % than the widget’s original estimated cost. This will keep you in a safe range that prevents cash flow issues.
Don’t ever put up your home as collateral, or mortgage your home for the business. Your home has to always remain protected.
Resist the temptation of acquiring investors. Accepting investment capital puts you en route to selling your business or going public, and you are no longer in charge. Unless you are anticipating an exit or struggling with cash flow, outside money does not make sense.
Billionaire Sam Adams Founder & Execs Fly Coach
Jim Koch, Chairman and Cofounder of Boston Beer Company left his $250,000 per year consulting job to sell his Samuel Adams Boston Lager from bar to bar, all by himself.
Now, over 30 years later, the Sam Adams brand accounts for 1% of all the beer produced in the United States.
Koch says that money’s never driven him. He focuses on what’s important to him namely, beer. He avoids showing off his wealth. So much so that you’ll usually Jim Koch wearing the same khakis and denim shirt. In fact, he insists on flying coach, together with all his Boston Beer Company employees, and that includes his executives.
What to Do with Your Money during the First 5 Years After Leaving College
Suddenly “…you became old enough for a lease, for taxes, for a bridesmaid’s dress. You may also ask yourself: How am I going to afford all this? If you are at the start of this journey, congratulations. Now is the best opportunity you will have to keep out of financial trouble and develop a solid foundation. But if there is no need to panic if you’ve already got a few working years under your belt, you’re not old yet. Small changes can still go a long way.”