Starting a business isn't a mad dash - it's a long-distance marathon. Entrepreneurs need plenty of physical, emotional, and mental stamina if they want to succeed. More importantly, they must be financially fit.
Financial concerns rank as one of the leading reasons why small businesses fail. If you're thinking of starting a business, learn some of the things you can do now to get in tip-top financial shape.
Take Control of Personal Finances
If your finances are out of control, then you could be denied credit or charged an elevated interest rate. Either scenario puts your business goals in jeopardy. Mismanaged personal finances also lead to problems as your business starts to earn revenue.
For example, a business owner with high credit card balances may be more inclined to use business funds to cover these expenses. Business 101 is understanding that your personal and business funds should never mingle. In fact, think of them as two enemies that stay as far away from each other as possible.
There are those scenarios where a small business owner has no choice but to charge a business expense on their credit card or dip into their savings. When these instances occur, treat them like a loan and only take from your business what you took from your account.
Map Out Initial Costs
If you've discussed your intentions with other business owners, then you've probably heard all sorts of figures on how much money you need to start a business. It's great for you to listen to this advice but jot it down as a mere suggestion or idea. Even two competing businesses will have different initial costs.
The best way to determine your expenses is to review your business plan. While reviewing your plan, make a note of any expenses that pertain to property-related needs, equipment and marketing, and anything else you need to start your operation. Once you have this information, you can start researching costs for each of these items.
When dealing with average ranges, always sway toward the higher end. For instance, if the printing machine you need ranges between $2500 and $3500, then factor the cost at $3500 for your initial cost sheet. It's always better to have too much money than not enough.
Factor Ongoing Expenses
A true measure of business success is longevity. If you aren't planning for the future in the now, then you aren't planning the correct way. Before you open the doors to your business, you should have a good idea of how much money you're going to need to keep the doors open.
To do this, you need to factor your ongoing expenses, including staples like rental payments, utility payments, taxes, and inventory costs. Also, include other variables like equipment maintenance, website hosting fees, and payments for any loans or lines of credit you plan to take out - with interest.
No matter how awesome your business idea is, and regardless of your tireless efforts, the reality is that you may not make a great deal of money in your first year. Set aside at least three months of operating expenses to offset slow sales.
An accountant will help you draft a budget to get your personal finances in order and even assist you with factoring your initial and ongoing expenses. At Wright, Ward, Hatten & Guel, PLLC, we're happy to partner with you from the early planning stages to the day you open the doors to your second location, and beyond.