4 Things To Consider Financially Before You Start A Business
A business wouldn’t operate smoothly without the right budget and finance management. It’s a must to keep abreast of the best financing strategies to keep your business intact and surviving when facing different challenges. Before you start a business, it’s essential to take a look at key things to consider financially, which will be discussed below.
1. Financial Expert Intervention
Even if you have a bit of knowledge of finance and accounting, it’s a smart move to work with an expert to avoid costly mistakes due to poor business decisions. Consider working out if a CFO can help you financially when starting a business. A chief financial officer or CFO is an executive officer is responsible for developing and implementing an organization's effective financial management strategies.
One important financial consideration when starting a business is your projected expenses. This way, you can prepare your budget and business plan.
Here are the important things to include in your projected expenses:
Asset Requirements: Plan the assets you’ll need to operate your startup business, including office tools and devices, furniture, and company vehicle, among others. Create a list that shows the item name, quantity, and price.
Lease: Office or space rental fees can be costly. Lessors usually require advance rent payments and security deposits, equivalent to three to six months of rent.
Renovation And Improvements: Rental space is usually bare, requiring improvements and renovation. So, you have to consider these costs, too, in your business plan.
Permits And Licensing: Applicable fees apply when getting permits and licensing.
Insurance And Bond: Getting liability insurance, workers compensation, and bond is essential to protect yourself from legal liabilities if problems arise.
Employee Salary: A major contributor to your business expenses is your employees’ salary. You want to make sure that you give their salaries on time. Also, giving your employees fair compensation benefits is crucial in employee retention and loyalty.
3. Startup Business Financing Options
While you can use your personal savings or money to finance your business, one thing to consider financially is that you might find it not enough to cover your business operations for the first critical months. That’s why you have to be aware of different financing options for a small startup business, which include the following:
Merchant Cash Advance: In this financial option, the financial provider provides a lump-sum and buys the rights to the portion of credit and debit card sales until the cash advance is paid. It’s the opposite of a small business loan, an easy way to obtain capital. However, it should be your last resort because this financing option involves a high expense.
Community Development Finance Institutions: CDFIs provide capital to small businesses and microbusinesses on reasonable terms, which are found across the country.
Convertible Debt: You can borrow money from an investor or a group of investors with the collective agreement to convert debt into equity in the future. Investors are guaranteed a certain return rate yearly until an action occurs, triggering an option to convert.
Grants: If your business focuses on science or research and development with high commercialization potential, you can receive a government grant offered by the U.S. Small Business Administration (SBA).
Crowdfunding: Get a financial boost to your startup business with crowdfunding. Crowdfunding platforms allow businesses to gather small investments from numerous investors instead of a single investment source.
Factoring Or Invoice Financing: The service provider fronts the money on outstanding accounts receivable or invoice. It's a way of maintaining a cash flow to keep your business running while waiting for your customers to settle their outstanding invoices.
4. Finance Management Tools
Boost your small business using finance management tools. Successful companies use finance management software to keep track of all financial data. While this financing option may not be suitable for your budget, you can use free online tools to manage your finances, such as Google Sheets. Once you’ve established your business, you can fully invest in financial management software to fully benefit from automation.
As mentioned, it’s crucial to consider working with an expert to equip yourself with the right financial knowledge and avoid costly mistakes. It’s also essential to identify your projected expenses and funding sources so you can create a good business plan to thrive and attain success. Finally, using finance management tools, such as finance management software, is vital to save you time and energy doing manual finance and accounting tasks. These are all key things to consider financially before you start a business.