Determine your additional needsJanuary 27, 2011 6:00 AM
Insufficient capital is among the top reasons small businesses fail. But business owners often must rely on outside money to get their business off the ground. The majority of new businesses are financed through personal funds and loans.
That means new business owners should evaluate how much money they are willing to invest and how much more they’ll need. Creating a business plan is vital to determining this.
In addition, loan officers and investors will want to see a detailed financial plan before committing any money. This process should be included in your business plan.
Make sure you understand your startup costs and how much you’ll need to keep your business running.
Common startup costs include:
- Securities on leases/rent
- Deposits for utilities
- Office furniture and supplies
- Production equipment
- Legal and accounting fees/other consultants
- Licenses and permits
- Design/architectural fees if applicable
- Business cards/stationery
- Initial advertising
Continuing costs include:
- Cost of sales
- Sales and marketing
- Extra money for unexpected emergencies
- Salaries and benefits
- Facility operating costs (rent, water, heat, etc.) •
- Technology (computers, website hosting)
- Administrative costs (office supplies, etc.)
- Insurance premiums
- Continuing consulting fees
- Taxes (business, employees, etc.)
Evaluating your company’s financial health
Once you’ve established your company, it is vital to ensure you have good financial reporting to determine your company’s financial health. You need to create performance indicators to monitor finances. For example, you might want to monitor sales growth, cash management, profit measures and customer feedback. There are software programs that can help small businesses manage their money, including Peachtree and QuickBooks.
The following are numbers that should be monitored weekly, as recommended by SCORE.
- Cash on hand
- New sales
- Accounts receivable (beginning balances, outstanding credit and cash receivables)
SCORE recommends that you monitor the following information monthly:
- Accounts-receivable average days outstanding
- Accounts-payable obligations
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