How Much Money Does Your Business Need?
It's easy to start a business and get excited about how much money it can make. However, the reality of your company’s success depends on how much investment you’re willing to provide. Whether you have $1,000 or $10,000 at your disposal, what you need is an evaluation of the fundamentals such as revenue projections, cost projections and cash flow projections. These are necessary to determine if your business will survive on less than $100K in funding.
Many new business owners assume that if their idea is successful, it will eventually become a big business and bring in high annual sales, but this does not guarantee profitability. It’s more important to understand the cost of your business' success. Inbound Marketing Inc.'s CEO, Brian Carter wrote a blog post about the importance of developing a cash flow forecast with input from an expert, even if you have the capital to fund it yourself.
If you don't have an expert to help you with these projections and need to get started on your own, there are many software programs available for calculating financial projections. You can use Microsoft Excel or build your own program using software such as Visual Basic or Power Point. You can also use business accounting software such as QuickBooks, which will automatically create profit and loss projections for you.
As you develop your projections, Carter recommends that you refer to the fee section of your contract with a Seybold Fee Schedule or an American Marketing Association (AMA) Rate Card. You should also include any legal fees, accounting fees and marketing costs in these projections. Another expenditure to include is the cost of running your business on a daily basis, such as administrative support and utilities. The last cost should be your new marketing efforts. If some of these costs are variable or unpredictable (such as legal fees), Carter suggests that you base them on historical averages rather than what you think they will be in the future.
When you have established your budget, compare it to your forecast and use the difference to create a contingency plan. Carter recommends limiting your funding to 50% of the total expense budget. This way you will be prepared for the unexpected while still leaving room for new opportunities. You can also use this amount when negotiating with a lender or sales representative.
If you don't have an in-depth knowledge of accounting and want to grow your business money-wise, Carter recommends employing an Experienced Financial Analyst as one of your founders. It will be easier for them to make financial decisions for the company rather than handling it as an afterthought or guessing about what is best for a growing company.
With the right funding, you will be able to keep your business expenses in line with your revenue and growth potential. If you have the expertise to evaluate your projected cash flow and figure out how much investment is necessary for success, you can negotiate with a lender, investor or bank with confidence. Knowing these details will also help guide you in making strategic decisions as your company grows and helps prevent costly errors.
As a small business owner, it’s ideal to grow your company from the ground up and make it profitable so that your business can survive without additional investment. If you can’t evaluate your projections on your own, get professional assistance sooner rather than later.
When you are ready to start your business, it is best to start with a basic website that is easy to update and maintain. Then you will need an email marketing program that will help maximize your marketing efforts. Next come mailing lists and a social media presence for promoting your business. After this, you want to start getting people in the door and eventually work on a mobile application for taking payments. Finally, you should base your pricing model on your profit margins rather than cost of goods sold because this will lead to better results over time.
By incorporating these things into a business plan, it will become much easier for potential investors or lenders to understand the financial viability of your company as well as how much investment is necessary. You will also be more prepared when negotiating a loan or business financing.
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Conclusion
While you can't make money without making money, taking the time to have a solid business plan is extremely beneficial to your company. A business plan will help you evaluate your potential for success and create an optimal strategy for growth, based on your expected business outcome and market conditions. It will also help you establish goals and create objectives which will save you money as well as time. Being prepared before starting up a business can decrease the amount of risk involved in investing in your idea. Carter's writing chapter will provide plenty of helpful information about how to properly evaluate different types of investments, projections for cash flow, financial forecasting tools and how to develop a profit-and-loss budget to analyze the profitability of different segments within a company.