5 Steps To Financial Success For Your Business
Roughly eight out of ten businesses fail in the first five years. Many financial experts point to lack of capital as the primary reason. When seeking finances for your new business, you need to demonstrate how your company will make a profit. Here are five steps to get you started.
Step 1: Project start-up costs and operating budgets.
Before you meet with potential lenders, you should calculate your start-up costs by determining what you need to buy or rent in order to start your business. Start-up costs include all initial expenses such as inventory, licenses and equipment. Next, calculate your monthly operating expenses, such as salaries, utilities, taxes, rent, office supplies, even your living expenses. Keep in mind that many businesses do not make a profit for eight to ten months. So you may want to overestimate your operating costs to help ensure that you can meet your expenses.
Step 2: Provide projected income statements.
Potential lenders also need to review your income projections. Estimate your sales on a daily and monthly basis. Then develop an income statement to demonstrateyour revenue potential for at least your first two years in business.
Step 3: Create a cash flow statement.
Your projected cash flow statement should illustrate how much money you need to run your business and where the money will come from. If your cash is tied up in receivables or equipment, your business is technically insolvent. When developing your cash flow needs, be sure to anticipate holidays and other seasonal events that may impact your business.
Step 4: Determine your break-even point.
Your break-even point is the minimum amount of money you need to operate your business each month. Any amount above that will result in profit. By identifying your break-even point you can more accurately track your progress and project future profits. However, keep in mind that this amount will fluctuate throughout the life of your business, so tabulate your break-even point regularly.
Step 5: Develop Plan “B.”
Smart entrepreneurs develop “what if” statements that offer solutions to potential problems that may impact the business. You should demonstrate to potential lenders how you plan to manage unforeseen difficulties in your business.
Whether you want to start a small home business or launch the next Fortune 500 company, your success often depends on your ability to secure financing.