Want to build a business that will last well into the future? The secret is sound financial planning. Financial planning and analysis allow would-be business owners to look at several things before starting a company, including initial costs, current funding, potential funding sources, the viability of an idea, potential profitability, and other factors.
Starting a business is more complex and expensive than just paying rent and making passive investment payments. Though similar to personal financial planning, smarter financial planning for a business does involve looking at your financial situation, including debts and investments, to understand what is possible financially going forward, it is also usually more complicated and harder for a new business to understand what’s affordable and possible for their venture. Working with a financial planner to help you understand the basics of finance necessary to getting a business off the ground and maintaining it successfully.
Planning to start a business? Get your financial planning in order first
In-depth financial planning is key to starting your own business. Follow these guidelines before starting a business successfully.
1. Estimating startup costs
One of the first steps to financial planning before your business is official is understanding the cost of “becoming” a business. Some of the costs associated with business planning include filing patents and trademarks, registering a business name, becoming a legal entity (as opposed to an individual), taxes, business insurance, and office space and equipment (even a home office needs Wi-Fi). A financial planner can help you find the costs associated with a startup in your area.
2. Finding funding
Most individuals or groups looking to start a business aren’t paying for their startup out of pocket. Even if you’ve received a settlement or have retirement savings that could be used to open a business, it’s important to understand the risks associated with that. If that’s your only income until the business becomes profitable, it’s not a smart or sustainable move to invest all of that capital into setting up the business.
Taking a loan out without understanding the potential for profit in your business model can be a risky endeavor and leave you with a massive bill with no way to pay it back. Many startups look to investors who then earn a percentage of the business’s profits. While there are several potential paths for funding to pursue, talking to other business owners and financial professionals can help you find the right funding sources for your business.
3. Budgeting and costs
Businesses can go bankrupt just like people can and usually for the same reasons – running out of money and accumulating too much debt. Once your business is official, it’s incredibly important to stay on top of cash flow. Tracking expenses – every expense from a cab ride to meet with a new client to the monthly cell phone bill to printer paper – should be prioritized and digitally cataloged. This can be very time consuming and tedious, but it’s essential. Apps such as Expensify help you keep track of all your business’s regular and impromptu expenses and having a realistic understanding of your actual month to month costs help you budget better.
4. Establish goals
Having goals for your business will help you understand your money better and where it needs to go to make your vision a reality. If you want to break $100,000 in monthly sales, you may need to put in more hours to acquire more customers or make an investment in working with a marketing agency. Just remember that every business cost should be associated with a future business goal.
Aaron Aders, CEO of LEIF Technologies wrote in an Inc.com article that “financial planning can save your (startups) life.” Indeed, it can. If you are excited to own and run your own business, make sure that you have your financial house in order – and don’t be afraid to ask for some financial planning help along the way. There are plenty of small business financial planners who are available.