Starting a small business requires a great deal of complex planning. Not only do you have to come up with your business plan and method for success but you need to consider financial funding. Many small business owners may take funding for granted and only look for it at the last minute. Unfortunately, this methodology could leave you in an unstable position as you approach opening day.
Funding for small businesses can come from a variety of sources, depending on your business model, ideas, and needs. Failing to adequately assess your needs could leave you with a larger debt than necessary, or not having enough funding to get your business off the ground. Included here are a few tips for assessing your financial needs before starting your small business.
Know Your Financial Situation
Making guesses about how much money your business needs to startup, could put you in a dangerous financial situation. Before seeking funding, get to know your needs first. Making a budget can help you better understand monthly requirements and costs before you seek funding. Your budget should cover all of your expenses, including: licenses, marketing, rent, utilities, CPA fees, attorney fees, web expenses, and your own personal living expenses until you turn a profit.
Analyze the projected cash flow of the company in the first few months. Projected sales and product manufacturing costs should be factored in, allowing you to get a feel for your income and expenses. Be sure to take changes in sales into account, and budget for months where you may sell less or more. Knowing what to do with a monthly surplus can help you plan for the future.
Get a BackUp
Once you have carefully analyzed your financial situation and understand your funding needs, are you able to secure a loan? Going straight for a small business loan is the most obvious path, but what if you are approved for less than you need? Deciding whether to utilize angel investors, family, personal savings, or another option for your deficit will help you manage monetary crisis’ as they arrive.
You may be in a different position, where you have secured your startup funding but now require additional monies. These could be for company growth or to recover from a slow season, but the need for additional funding frequently arises. Before going out on a loan, assess your finances again.
Can you cut back on your expenses? Is this expansion taking a significant risk? How urgently do you require this funding? How stable is your industry? Having a careful understanding of additional financing, before going to the bank, will improve your chances of approval.