Welcome back to SHEcorporated ONE STEP Empire podcast!
Last week you built, or started building your website and set up your social media and other online accounts.
This week we are helping you figure out how much money you need and where to find it as we sort through your options for financing your new business.
How much money do you need?
To figure out how much money you need to startup, you’ll need to work out both your business and your personal budget. From there, you can calculate what revenue your company needs to produce to cover both.
It is a great idea to take a short course on financial management for small business, just to make sure you have the basics under control.
It’s also important to prioritize your spending. Spending is the easy (and fun) part, so it's easy to turn to that when the other stuff drags you down, and rationalize that you are still "doing the work."
But things like inventory, supplies, rent, ongoing service fees and trademarking should be put off until the last possible moment.
It's likely to take longer to get started than you thought, and even longer than that to turn a profit, so don't rush to make those purchases.
Some good advice is to take the money you expect to need and double it, along with doubling the time it will take to get operational, and double the issues you will have along the way.
As entrepreneurs, we tend to be optimists, which means we also tend to lean toward the best-case scenario when planning. So, keep that money in your pocket and work from home until the last possible second, don't buy that expensive equipment until you are ready to use it, and get all the low cost and free groundwork done before you move on to the expenses.
Keeping a tight rein on spending, while you get your business started, is a smart strategy to help make sure you have funding when you need it.
There are four key financial tools you need in your tool kit:
1. Income Statement: This report lays out what you expect to earn and the expenses you anticipate during a specific time frame.
2. Balance Sheet: This is a snapshot of the state of your business at any given point in time. It will show what your company owns (assets), what it owes (liabilities) and what is left over (equity).
3. Cash Flow Statement: This is the most realistic picture of your business, as it shows how much cash you will have available at any point in time, to keep your business running. It shows the cash coming into the business, and flowing out, during a specific time frame.
4. Break Even Analysis: Very simply how much in sales you require to cover your costs. If you break even there is no profit or loss.
Where can you get the money to start your business?
Once you have your financial plan laid out, you will know how much money you will need to get up and running, and stay operating, for the first year.
Many new businesses use a combination of personal savings, investments from friends and family and loans.
Other options are:
Credit cards: Be careful with credit cards. They are easy to obtain, and are great for making purchases, but the interest rates are high, and if you can't pay the balance off each month, that interest will add up quickly.
Operating line of credit: This is a loan with a set limit, that you can draw on when you need to. Interest rates are lower than most credit cards, and some loans, and you only pay interest on the outstanding balance. There are no fixed payments, except for a monthly fee and interest, meaning you have the option of paying down the loan as you can afford it. It is usually secured by your house or other assets.
Term loans: Term loans are longer term options used to cover expenses like equipment, renovations, and other large purchases. They are arranged over a fixed term, with a set repayment schedule. The lender will require security for the loan, such as equity in your home, or other assets.
Equity investors: These investors provide financing in exchange for a share of ownership or equity in the business.
Venture capital: Money that comes from a pool of investors, who are looking for a very high rate of return on the investment.
Angel investors: Individuals or companies that look for higher risk investments, with good growth potential. Angel investors usually are interested in long-term, high-return investments.
Grants: Money that does not require repayment. The criteria are usually very specific, and the application procedure can be long and time-consuming.
Crowdfunding: Using small amounts of money from a large number of investors. It usually involves showcasing your business on a crowdfunding platform, like Kickstarter, iFund Women or IndieGoGo. There, the general public can buy into your idea to support it, often in exchange for special first purchase options, or other perks to pre-fund your idea.
So that’s your one step for this week. Work out how much money you need to operate and live for the first year of your new business and then decide which source of funding is right for you and set the wheels in motion to get it.
Next week we are getting a Marketing Plan to push your new business out into the spotlight with our 10 Simple Steps Marketing Plan.
So make sure you subscribe if you haven’t already and drop us a rating or a comment and hit us up @shecorporated on social and we’ll see you back here next week.