Make These Financial Considerations Before Starting a Business
You’re not a financial professional, you’re an entrepreneur with a great idea you can turn into a successful business. But building a business from the ground is one of the most difficult things you’ll ever do, especially if this is the first start-up you launch. Most start-ups fail because they make financial mistakes, so ensure you avoid them. The last thing you want is to run out of money in the first year of existence.
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This article summarises the most important financial considerations you need to make before starting a business.
Are You Prepared for the Worst?
You face the unexpected when you start a business because you have no idea what you should prepare for. So, it isn’t smart to quit your job and cut down your main source of income during the first year because it’s quite likely your business not to replace that income.
Keep finances in separate saving accounts and don’t borrow money from your personal account to cover business expenses. Don’t use the money you saved for paying bills. Even if you can never be prepared for a bad situation, it’s wise to plan for the worst-case scenario. Often, they happen when you less expect. You lunch your business and the public is thrilled with the products you provide, but somehow your business doesn’t deliver any revenue. Don’t forget you’re an entrepreneur, and you’re responsible for both your financial security and the one of your employees.
Make other micro-investments in parallel with your business to make the most out of all opportunities.
What Are Your Financial Goals?
Everyone wants to build a multimillion-dollar company, but this shouldn’t be your only goal. You need to make a list of reachable and measurable goals before starting the venture.
Plan monthly and annually goals for the business to help you stay on track and make the right choices to boost your organisation’s growth. It’s a great idea to set milestones you need to hit along the way because they establish goals you need to achieve. When you knock down a little goal, you are more confident you can succeed in your entrepreneurial journey.
What Financial Options Do You Have?
Starting a business costs a lot so how do you want to finance it? Do you plan to use your savings? Do you plan to associate with a rich investor who trusts your idea? Do you plan to stay employed until you figure out if your company is successful? It’s important to take a real look at the implications starting a business comes with.
If you plan to use your savings ensure you have a separate account for business financing because it’s not smart to use your holiday money for this. Don’t forget to use a financial model to understand how much you need to invest before you get profit. You probably have access to multiple funding options, from government funds to bank loans and angel investors, so you must check their ups and downs and decide which one is suitable for you.
How Can You Raise Money?
You analysed your business plan and you decided you need funding, but not all funding is created equally. You need to decide if you opt for a loan or you contact an angel investor. This decision will highly impact your company and influence its operations. Working capital loans are Canadians’ first choice because applications are easily approved, and entrepreneurs can keep an eye on their interest rates and repayment terms.
It’s recommended to compare the benefits various lenders have for working capital loans to ensure you get a flexible one, you can easily work with.
You also have to decide when you need funding because most of businesses need finances more than once. It’s paramount to have your timing and capital right. Crowdfunding is another option, more and more entrepreneurs use to power their ventures, but it’s important to note that it’s not the easiest path to follow.
How Do You Plan to Limit Expenses?
The best way to build a prosperous business is to keep your expenses low during the first stages. In the first year, you don’t need a huge office building, you can work from home or rent a shipping container and convert it into your business’ office. Shipping containers are used to construct affordable buildings, so you can create the headquarters from scratch.
Operate thin and use the majority of the capital to boost the growth of the business. Your finances should enable you to implement strategies to reach clients and convince them to buy. Don’t focus on the things that don’t influence your business growth, like over the top amenities and fancy offices because they aren’t necessary.
New start-ups face expenses from all directions, so it’s recommended to use accounting software to handle the books. It can help you with cash flow management and tax tracking. When your business grows you can hire an expert to do the job.
Do You Have the Tax/Legalities Right?
You don’t hire a full-time accountant to handle the books but you should consult one to ensure you correctly register your business for different types of tax. When they do it for you, you can focus on the aspects that require your attention. If you also keep your full-time job it all comes to the free time you can invest in growing your business.
In addition, tax regulations change quite often and only a professional working in this domain can keep track of these adjustments. When you start a business, you need a unique number registration to simplify the dealings with the government and municipal jurisdictions. You may also need a business number or a CRA number account if you start your business in Canada.
And last but not least, you should always have an exit strategy because you never know when your business folds. It’s wise to be prepared for a healthy exit. Keep the records immaculate because if the business is successful you may want to sell it in the future and retire to a sun-kissed beach.