Making a financial plan does not sound as fun, but we could all agree on the fact that no business can flourish without resources, staff doesn’t work for free, buildings don’t sustain themselves and products don’t simply auto re-fill on the shelves. These are the most obvious reasons why a solid financial foundation is needed in order to have a successful business.
Every business starts as a dream, a project and from there it develops into an organisational plan until it finally becomes a reality. If you take the time to build a good financial plan before the opening of your business, or if you already own a business as soon as you can, this will help you not only lift it up from the ground and maintain it, but it will guide to you the next level of success you thought impossible.
Basic start-up amount
People say the hardest part of entrepreneurship is starting your own business, that first stage where you enter uncharted waters and stand in the market more vulnerable than you will ever be. It is always good to start with more than enough, in case any inconvenient shows up like lack of customers, price variety in products or anything else that could slow down your start up. Getting the right initial amount on the other hand, can be easier said than done if you are not ready.
To take in account on this section are areas like:
Facilities: Venue rent or payment in case you decided to buy the place. This is a constant payment that you will have to prepare to make for at least 6 months until your business is finally established and gives you enough income to cover this area.
Utilities: Usage will definitely vary according to the type of business. For example: a printing company will spend way more electricity than a clothing store simply because of the different equipment needed and processes that take place in the business.
Equipment & furniture: To take in account no matter what business you run, but same as utilities the price will vary according to the type of industry. Shelfs, tables and chairs, decoration, registers, computers and others might be worth thinking about.
Float: Not a lot of people pay attention to the fact that a float will be handy when you just start your business and this involves cash payments.
Staff: Some entrepreneurs start with them being the only paid staff, since that is all you need if you are a small business, but if that is not your case, and more than one person working from the start will be needed, this is a good point to calculate.
Products: Take the time to calculate how much of each material or product you will need in order to get the business started with excellence and considering the demand you have. At this point it is not convenient to have too little nor too much.
Continuous expenses
Some of the areas mentioned before hand like Facilities, utilities, and staff wages are what you would call continuous expenses, for no matter how good or bad the business is going you will have to cover them month to month or on a weekly basis.
If you calculate how much you will earn considering a minimum amount of customers on the first few months, does it cover the cost of your continuous expenses? Or is there something else you could do in order to have them covered? Are there any of these areas you could choose to spend less at?
“Planning is bringing the future to the present so you can do something about it now”.
Alan Lakein
Price setting
Considering how much you’ve spend on making the products you are selling or the services you are offering, you will set up a price that hopefully covers your material expenses, contributes to your continuous expenses and on top of that gives you enough income for yourself. The goal is not to overprice things but to be smart enough to cover all your expenses and get enough money to continue to develop and improve your business in the future.
After you have evaluated each of the mentioned areas, go through your plan again and look for any holes you may have missed. Thinking of all these details ahead instead of once the business is already running, will save you a headache and will allow you to be one step ahead of your own business, giving you mental room to think of improvements and new ideas.
What else could you include in your financial plan to give you a good kick start on your brand new project?
