The overriding factor in any startup environment, aside from the location or the people you need, is the finances. If you evaluate your business plan in enough detail, you will understand how much money is needed in order to get the venture started with enough money to spare. This is a common misconception among smaller businesses, that if you start out strong you can keep the momentum. Unfortunately this isn’t always the case. If you run out of resources early on, you can run the business into the ground very quickly. Prior to starting your business officially, there are some things that you can prepare for, and all it involves is making lists.
Business Assets
These are what you will need in the long term. The fundamental items of equipment you will need, in other words, the inventory. From the machinery and tables, right down to the din 2093 spring, make an inventory of what you will need at the outset. These will consist of your starting assets, discounting the money you have in the bank. For each item, you need to make an educated guess of what each item will cost. If you really are not sure, either do some research or overestimate.
Business Expenses
Different from an asset, as everything you purchase is not an asset. You can spend business money on expenses, for example, the cost of setting up your business website, or the cost to fix up your offices, or the salaries you pay your employees. Now you add the starting assets and the starting expenses together to calculate the vast majority of your starting costs.
Figure Out The Amount Of Money You Will Need To Begin
This is the last piece of the jigsaw. Knowing how much money you will need in your accounts for the first few uncertain months of the business will be the deciding factor in keeping the business afloat. Now, there are different ways to do this. A lot of people would say that you need to cover 6 months of expenses, maybe 12 months, but the best way would be to estimate the sales, the expenses and the costs of the sales and expenses over the first year. You may wish to create a sales forecast to help guide you.
What you should now have is a list of 12 months with the costs, expenses and estimated sales for each individual month. The costs and the expenses are then subtracted from the sales for each month, you should then see if you are short of money or not. Using that, you can then start to see how long it will take for you to break even and how much cash you are lacking in. The amount is what you need to have behind you as the total starting cash for the business.
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The great thing about this method of calculation, is that if you have not had a business plan put in place, this will be a starting point for you to make a business plan! Get prepared, by understanding your additional costs!
