So you’ve just taken the plunge and decided to start your own small business. Kudos! However, before you proceed I advise you to take a few minutes, read this post from top to bottom and consider some important financial factors to make sure you get off to a flying start and survive the competition.
Table of Contents
Consideration #1 – Start Up Costs
Initially starting up a small business may not be very expensive, depending on the business, but you’ll still need to take money from your pocket for some unavoidable launch costs before you start seeing any profit come in. It would be best to make a calculation regarding the amount of money you will need to fund your total operating costs for the first 6 months while you build up a ‘cash float’ in order for the business bank account to become self-sustaining. If you under-fund the business, it might be difficult for it to take off in the shaky early days when cash flow is most unpredictable.
It’s worthwhile conducting an exhaustive list of every item and overhead cost you’re going to need. Take all factors into consideration, such as whether you will need any furniture, equipment, training, website etc. You may also need the services of other individuals such as a lawyer or an accountant if you are unable to complete certain tasks yourself. The more exhaustive you are at this stage the less headaches you will have down the line.
Consideration #2 – Marketing Expenses
You must consider marketing expenses such as advertising. These need to be properly monitored as they might sometimes run out of control. Conduct thorough research of marketing methods that would be best for your business in the beginning, and expenses they could possibly incur. There are plenty of credit companies out there willing to lend you cash to kickstart your marketing efforts (at a premium of course) so if you’re calculating ROI on your marketing from loaned credit, make sure you factor in the interest of the loaned cash too.
Consideration #3 – Protect Your Brand
Building a business is always difficult, you already know that. One of the biggest challenges is winning new business and gaining the trust of your customers. As your business presence grows, especially online, you’ll become exposed to all manner of threats to your brand’s identity. One of the most prevalent in 2022 is for your brand to be used as the face of a phishing scam. i.e. fraudsters try to con unsuspecting victims by cloning your brand and capitalising on the hard work you’ve put into making your brand trustworthy and legitimate. We highly recommend checking out this guide to get a better understanding of phishing threats and what steps you should take to protect yourself and others.
Consideration #4 – Funding Options
You need to consider where the money is going to be sourced. Are you planning to borrow the money from a bank or do you have a savings account, investments or any other assets that you are relying on? You could even consider a silent partner who could put up some of the necessary capital.
This could be arranged until you have reached the break-even point and have started making profit, and buy his percentage of the business back. Of course all of this is dependent on both partners acting in good faith. It’s always wise to include proper legal consultation when drafting up any such credit agreement. It would also of course be a great idea to check out the possibility of loans, home equity or grants for funding your business.
Consideration #5 – Know Your Basic Business Jargon
Before you venture into your first small business, you must familiarise yourself with some very common business terms. Such as a corporation, a partnership, sole proprietorship or an LLC. The legal format of your business can impact your tax situation and personal liability in case of debts incurred against the business.
In the daily operations of your business you’ll encounter more financial acronyms than you can shake a calculator at. For example, do you know your ‘COGS’ from your ‘GP’? If you just felt yourself making a confused face then this post on basic accounting jargon is for you. Get as much information as you can about these and commit them to memory. I thoroughly recommend you seek out a business accountant if necessary as you never want to be in a position where you don’t fully understand what you’re talking about.
