How to Plan for the Financials for Your New Business

Financial

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Financial planning is an essential part of any new business. Not only can it be incredibly difficult to acquire upfront funding without a full costings list, it’s not a good way to do business. Without adequate financial planning you can run into one of the most difficult road blocks to overcome when it comes to starting a new business – debt. Yes, you will need to take out a loan in the beginning, but you must know up front how much you need and have a comprehensive strategy in place in order to bring up sales from the start. Never leave your financials to the last minute. Put them at the forefront of your business planning strategy.

Create a Business Plan

Financials and costings must be considered right at the start from the moment you begin assembling data to put into your business plan. When you are creating it, you will want to know how much rent would be on average in the neighborhoods that are populous with your demographic. You will need to know how much acquiring stock will cost. You will need to know what operating costs will look like.

While you are doing this research your competition. Large businesses might even offer this information through the freedom of information act, or have it published and freely available. If not, analyzing your competition can be useful to determine how they increase sales and keep costs low. You could ask managers that work at a similar business in a different neighborhood directly, as you won’t be a direct competitor.

Costs to Consider

When creating this business plan there are a few costs you will want to consider. To get an accurate idea of these costs, you can use online tools. For more help with calculating your business loan, for example, you can use an online calculator and factor that into your costings sheet.

Costs you will want to include in this costings sheet include:

Cost of Rent

Rent is an easy estimation to make, but only once you have committed market research and have determined who your demographic is. You will then want to visit your town hall to have a look at planning projects to see what new opportunities are available. If a new suburb is being built, you can get in early and be the only hip café in the area for the new parents who are moving in. As the area is new, rent will also be low.

Alternatively, you might want to open up a store at a prime location. You will be paying extra for it, but the foot traffic can definitely be worth it.

Cost of Utilities

Utilities will range from average, or how much you are familiar with using in your own home, or high. They will be higher if you have special needs. If you want to open a grocery store you will need freezers, and fridges, both on the floor and in the back. These appliances will increase energy usage.

Cost of Labor

Cost of labor will depend entirely on your business type. A small retail store can often have one or two employees on the floor and a manager. A restaurant on the other hand will be looking at 25% to 40% labor depending on how much service you want to provide. Then there is the difference in minimum wage across the country you will need to factor in.

Cost of Material or Products

Whatever your business, you will have ongoing costs. Perhaps you need to keep ordering more stock, perhaps food and drink. Either way you will need to budget in these costs in advance.

Cost of Insurance

All businesses must be insured against disasters and liability. You will also need to offer worker’s compensation in case one of your employees is injured on the job.

Cost of Repairs

Repairs can be hard to budget for, but making a monthly deposit into a repair or emergency fund for your business can help you pay for any unexpected cost without taking out a loan to cover it.

Funding Options

Once you know the costs associated with running your business you can create an accurate estimation of running costs. This will help you understand how much you need to borrow and make in order to succeed. Once you know your upstart cost, you can then go and explore your funding options.

Bank Loan

Banks are reticent to give out loans ever since the 2008 economic crash. In order to get a bank loan or a bank’s line of credit you will need a very health credit score and history, proven your business acumen, and more. If you can secure a loan with a bank, however, you can often enjoy lower APR interest rates.

Small Business Association

The small business association (SBA) in the United States is there to help small business get on their feet. What they do is essentially guarantee a portion of your loan, which in turn can make it easier to get a bank loan.

Third Party Loan

A third party loan or online loan can be ideal for new businesses who cannot apply for a business loan. You will want to shop around, however, to ensure you find the best offer and interest rate available.

Franchise Loan

If you are opening up another location of a franchise, chances are your franchise owner has a lending program you can join. They give you the money they know you will need to build your own location and then have fair repayment plans to help their new business partner succeed.

Investor Loan

Investors can come in many forms. They can be friends and family, they can be strangers who want to sponsor a new business type in their community, or it could be business tycoons who believe in your innovative business model. Who you let invest is critical; you don’t want to compromise on your values or on your control.

Planning for your financial situation takes time, but with a carefully thought out costing sheet and budget strategy you can better manage your new company and get the funding you need to get started.  

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