How to Survive Financially Until Your Business Takes Off

Essential Financial Tips To Help You Survive Until Your Business Takes Off

Introduction

You may need alternative sources of income while your business is growing. Many businesses do not make a profit in their first year but can earn enough to cover their outgoings. If your business does make a profit, you may want to reinvest it to help your business develop.

This guide gives advice on how to keep your business afloat in the early days of starting up. It will help you work out your profits and financial needs, reduce your spending, re-invest your money and find other funds.

A financial adviser or accountant can help you address these issues in the early days.

Forecast your personal financial needs

When starting your business you will need to make a realistic forecast of your
personal financial needs. A personal budget is a plan detailing your domestic
financial needs for the year. It should try to set limits on the amount you plan to
spend each month on various items like rent, food and housekeeping.
Tracking your personal spending can help you find out how much money you will
need to take from the business.

You should work out how much money you will need each month. If you multiply
the monthly figure by 12, and make adjustments to cover one-off spending such
as holidays or car tax, you will know how much you need to live on during your
first year of trading.

It is important to be realistic. You may need to find other funds or borrow money.
Financial advisers usually say that the equivalent of three months money should
be held on deposit for a rainy day.

Some expenses, such as your rent or mortgage, are likely to be fixed, whilst your
spending on other items may change from month to month. You need to keep a
close eye on the areas where savings can be made - such as leisure or travel.

The first year in business is vital to its success and you may have to accept that
a financial sacrifice of some sort is required to keep on trading.

How much money will your business make?
You need to identify how much money your business is likely to bring in over the
coming year and then how much profit you hope to make.

You can do this by:
• estimating your total income from sales
• estimating your expenses
• working out a figure for salaries and dividends, including tax
• working out the difference between your financial requirements and the amount you are prepared to take out of the business
This will leave you with the amount you potentially need to find from other sources.

Profit and cash flow
It may not be easy to calculate exactly how much your business will make in its
first year, so concentrate on cash. Cash and profit are very different, a fact which
is often misunderstood. A business can survive for a short time without sales or
profits but not without cash.

Profit is the difference between the total amount your business earns and the
costs it must pay out over the trading period - usually a year.

Cash flow is the balance of all the money flowing into, and out of, your business.
It covers actual payments of money, as opposed to what is owed by your debtors
or to your creditors. Cash pays the bills and allows trading to continue. The need
for cash is even greater if your business is growing and extending credit to more
customers.

The main outflow of cash is the money you spend including salaries and
overheads such as stock, raw materials and any other capital spending.
If you sell on credit, your cash inflow is delayed until you are actually paid so
effective credit control is important. A business that buys on credit and is paid in
cash, such as a retailer, is at a great advantage in cashflow terms.
Many businesses rely on bank overdrafts and quickly reach their borrowing limits.

It is therefore important to think carefully about your cashflow and reduce the
need to rely on an overdraft.

Make savings
There are ways you can save money on goods and services, both at home and
in your business.

Making personal savings
You could reduce the amount of money you pay out each month by consolidating your debts.

You can also consider Lowering your energy bills

Making savings in your business
You could implement simple cost control systems across your whole business to
identify scope for savings. You could cut unnecessary or excessive costs, for
example, by not heating your premises at night or finding low price suppliers for
goods or services. Again you can try Lower business utility bills consider leasing goods or buying them second hand.

Also consider whether you can save money by running your business from home.

Other sources of income
You will almost certainly have to find other ways to finance your needs during the
early days of your business.

There are a number of options open to you. You could:
• Use savings - make sure that you have an emergency rainy-day fund
which should add up to three months spending.
• Release equity from an existing asset - for example, trading in your car for
a cheaper one.

Sell unwanted assets to create income - many people have things that
they do not use or want that can be sold at auctions, online or private
sales.

Get a loan from your family and friends. In most cases people who borrow
from family or friends do not pay as much interest on such loans.
However, be aware of ill feeling that may be caused if you are unable to
repay on time.

• Get a personal loan - not one of my favourites (investors may be a better option) nevertheless it is still an option.

• Borrow against future income by selling your debt to a third party.

• Get an overdraft. Remember that the overdraft will have to be repaid, and the interest rate may be high.
  
  
• Seek investment from external sources in return for a share in your business.
  

• Take on a second or part-time job - this will provide a useful source of income but it is important that it does not distract you from your priority of running your business.
  

We have a few business opportunities that you may want to consider at our blog site
The Million Pound Ideas blog

Prepare a financial plan
Once you have gathered together all your key financial information such as
estimates, overheads and expenses you can produce a financial plan.
The first step is to draw up a budget - a plan for spending and saving your money. It is important to stick to a budget so you don't risk overspending or running out of money for essentials. The key to budgeting is maintaining simple but good records. You will need to keep track of where your money comes from and where it goes.

You should:
• prepare budgets showing the level of sales and profits you expect to achieve, and the costs involved in doing so• estimate your total sales
• prepare monthly or weekly cash flow forecasts (which should be regularly
updated), looking ahead one year - overheads such as rent can be accurately predicted
• make sure you will have enough money on the day to cover each payment

Find support
Most businesses need assistance at some stage in their development. This is
especially true of businesses in the early days.

There are a number of sources of help, including:
• business consultants
• start-up schemes
• schemes for young starters - eg Shell LiveWIRE, Prince's Trust
• financial advisers
• accountants
Bear in mind that you will almost certainly have to pay for the specialist
knowledge and advice from financial advisers and accountants.

I can help you with this if you like.

My details are below:

Ken Ajoku
Business & Marketing Advisor

Website: TheKajokuGroup.blogspot.com
Mobile: 07956 515 868