Financial strategies for starting a business

Starting A Business

Starting A Business

When thinking about starting your own business one of the first priorities is to assess the financial risk element.  If after this assessment you are confident enough to go ahead, then a management strategy must be in place ready to manage any risk factor that might materialise and become a real problem.

Before you do anything else you should prepare a comprehensive business plan.  You will certainly need such a document if you intend to approach your bank for finance to enable you to start trading.  Even if you can self-finance your business start up it is essential to have a solid business plan. This will ensure that you are well prepared, as well as helping you to decide whether your business idea is in fact a feasible one.

You will need to clearly define the vision you have for your business, because this will be its driving force. Consider things such as how you will finance future growth and what your main competitive advantage will be.  Make a list of your primary objectives and actionable items to give you a time-plan for reaching certain goals. Also carry out detailed research into your proposed customer base, and learn all that you can from the competition.

Most importantly, on the financial side you have to answer the basic question of how you propose to make reasonable profits. You need to identify a break-even point and the amount of profit potential that your business has. Financial projections are a very important element of this and you should take great care in preparing them, as they will have a direct impact if you apply for a business loan.

The financial projections should incorporate the collection period for outstanding customer accounts in addition to your suppliers’ payment terms. For example, you might be settling your bills after 30 days but you have to take into account that you will possibly be waiting for anything up to 60 days for your customers to pay you; these two things have to be balanced to create smooth cash flow.  A projection of cash flow will in fact highlight all the potential gaps and will allow you to identify exactly how much working capital is going to be needed to fill them when they do occur.

The key areas to consider when working out a financial strategy are the amount of start-up investment that will be needed, plus the assumptions that are built in to your business plan and whether these are realistic or are merely wishful thinking. The running monthly overhead is also important, as is the sales forecast data. Cumulative cash and break-even figures are the other two aspects of a financial strategy, and once you have all of these in place you will have a solid foundation to build the business upon.

The initial costs involved in setting up in business can be self financed or covered by approaching various lenders for the required sum.  These will include banks and perhaps private investors that will base their decision on whether to lend you money on the integrity of your business plan. Factors such as choosing the right location for a business will have a large bearing on the cost element, as this will translate directly into overhead costs, and the more you can keep these down the better. Take into account staffing and utility costs, as well as other overheads such as broadband and support packages, and compare energy prices before deciding on a provider. These should all be considered well in advance of actually approaching a lender so that you can present realistic figures.