For some people the desire to start their own business is fuelled by a need to escape the humdrum routine of the corporate office environment. For others, there is a genuine passion for innovation, an exciting new idea and the drive to turn it into a money-making venture. Whatever the reason for establishing a start-up, it is important to plan it carefully – none more so than when it comes to planning your new company’s finances.
The starting point for any worthwhile financial plan should be an audit of your own personal finances. Assess exactly what assets you have, analyse streams of income and then take a look at your expenses. It may be worth seeing whether you can cut these down. At the end of this process, it is important to decide how much of your personal cash you are willing to risk on your new business. The harsh truth is that a new business may not make a profit for at least the first 6-12 months, so think carefully about how you can realistically finance this period.
In doing so, it is also crucial that you build an accurate picture of your start-up costs. There will likely be a number of significant expenses, especially at the beginning: from equipment to rent to necessary professionals such as accountants or marketing experts. If you decide that you need more capital, try to secure it before you launch your new business or at least plan how you intend to do so. There is any number of options for raising capital. You may be able to able to ask family and friends for relatively small amounts. Alternatively, if you can present a convincing business plan, a bank may grant you a loan or even a venture capital fund or angel investor may be willing to invest. Weigh up all the alternatives. A loan will mean you owe interest but a more serious investor is likely to expect equity in your company which will impact your control and your profits.
If you have managed to execute the planning stage effectively, then you should be ready to launch your start-up. The initial phase of trading is also a critical period of time and there are plenty of things which you should do to continue on a solid financial footing. Crucially, you should keep accurate and thorough records of all financial transactions from day one. It will help you plan for the future and make tax filing and assessments so much easier. You should also make sure that you take out a health insurance policy which ensures that you will still receive an income if you fall ill. Otherwise, the viability of your business may rest solely on your health. Another initial action item is to acquire a business credit card. The card application process is not too onerous and there should be a number of perks to a business card such as higher credit limits and better interest rates. In addition, keeping your business and personal finances separate is usually a sensible model to follow.
If your start-up is performing well and you begin to turn in a profit then make sure that you reinvest some of the money into the business. Although it’s tempting to simply pocket the cash, the key to growth is to make your money work for the business.
[Image Credit: Photo by 401(K) 2013 CC]
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