How to determine?
It can be very rewarding, exciting, and challenging to start your own business. The biggest challenge in starting a business is making sure you have enough money to get you through the first few months, or even the entire year.
Your company may struggle to get its feet on the ground if it doesn’t have enough financial resources. You must be realistic about the time it will take for incomes and expenses to catch up. It is possible to experience losses for up to a year, and you will need to have funds to cover your expenses.
It is important to calculate the cost of running a business and to research your financial options in order to ensure you have enough money.
Cost estimates for your start-up
It is essential to have a solid understanding of the economics behind your venture before you consider financing it. Loan lenders may be interested in your goals, the story and the steps you need to get there. You need to know the following:
Calculate one-time expenses
These expenses are only necessary for the opening of your new business. These expenses may include legal and professional fees for registering your company or incorporating it; long-term assets such as machinery, real property, or a car; consulting services; website design; office equipment, supplies; permit fees, license; advertising; market research; mileage; and training.
Calculate the recurring cost
These are the expenses you will have to pay repeatedly, usually on a weekly or monthly basis. These expenses include wages, insurance, utilities, professional fees, and so on.
Determine whether the costs are variable or fixed
Variables are costs that can change over time. These include insurance packagingshipping, wages and other expenses. Fixed expenses are the ones that will not change. Fixed costs include administrative costs and utility costs. You can organize the data by creating a spreadsheet with excel. This will allow you to view it in multiple ways (line graphs, bar graphs, etc.).
Make a balance sheet for your business
Consider creating balance sheets if you are starting a small business. This should include equity, liabilities, and assets. These categories will help you keep track of your finances, and make it easier to pay your bills.
- Equity = Assets (Current assets plus fixed assets) + liabilities (current liabilities + other liabilities).
- Create a cash flow analysis for your business
Cash flow is the most important thing in a business. Cash flow is the amount of money that flows into and out of your business. This can be broken down into investment activities, financing activities, and operations. This analysis will help you determine when your company is breaking even, so you can expand or reinvest.
Reasons you might not need funding
- What is your need?
Your lender and you will be greatly helped if you know the nature of your financial need before applying for funding. You can get the best out of your financing by having a clear understanding of how you will use the money you receive. It will be possible to communicate with your loan lender how you plan to use the funds. This will help you not only grow your business but also ensure that you repay your loan.
- How urgent does the need seem?
Sometimes, it is the urgency of your funding need that will determine which type of loan lender you should work with. Traditional banks may not be the best option if you require a short-term loan. They can take several months to approve. Although they have quick turnaround times, rates can be high.
- Is your business seasonal or cyclical?
Seasonal businesses are usually short-term and rely on small loans. When securing loans, it is helpful to know that your company is cyclical.
This all comes back to cash flow. Loan lenders will be more inclined to lend you money if you have a good understanding of when money is entering and exiting your company bank account.
There are many types of financing options available for businesses
- Family and friends
New entrepreneurs rely on the working capital of family and friends – also known as love money. Friends and family are often happy to wait for operating profits to start rolling in, but it can be difficult to combine personal relationships with business.
- ersonal investments
Many start-ups require some personal investment from the owner. This could be either in personal assets or valuables that can be used as collateral to obtain funding.
- Debt financing
Lenders offer a variety of funding options, including term loans and lines of credit. Lenders may offer loans specifically designed to finance a new venture. These loans have flexible repayment terms.
- Subsidies & Grants
Some businesses might be eligible for subsidies and grants from the government to help with their start-up costs.
- Quity financing
Equity financing is typically provided by primary investors or other companies. In exchange for equity ownership, they will provide funds to your venture. You can reduce your risk by investing in equity investors. They may want to alter or interfere with your business model.
It is a good idea to contact an investment banker. Many functions are performed by investment banks. One of these is to match buyers and sellers and do equity research. Wall Street Prep provides a great guide to investment banking, including information about its functions and changes over the years. You can also find out more information here.
- Alternatives to Consider
Let’s face it. You may be interested in alternative funding options or venture capital funding. However, it may not be an option for you.
Because you are starting a new company, you don’t have any trading or accounts to prove that your company can repay a loan.
Rangewell can help you find a solution. Rangewell is a finance company that can help you find lenders willing to lend to start ups. To discuss your plans, visit their website.