When it comes to getting an entrepreneurial venture off the ground, careful budgeting is essential to ensure you make the most of your startup investment. Some entrepreneurs have a tendency to underestimate what actual start-up costs will be or to overlook some necessary operational costs. All of this has the potential to derail your finances before you even get off the ground, so advanced prep is key. The Derby Chamber of Commerce outlines what you need to know from the start to ensure you make strong financial decisions.
Planning Your Business
Developing a comprehensive business plan is the first best step for a small business. Not only does a business plan template help you identify key operational functions, but it also prompts you to plan a marketing strategy and create a detailed line-item budget. Additionally, you’ll be guided to identify all start-up costs, some of which may seem minor or easy to overlook. Many are also necessities that could factor into your overall budget and your start-up timeline, and your financial calculations may even impact what you'll need to charge in terms of your products or services.
What’s Your Score?
It’s important that you check your credit score before you start looking for business loans. Most lenders require a credit check and will not fund anyone with a lower score because it implies that you are not good with money. Lenders want to ensure that they will get the money they lend you back in the timeframe established. If your credit score is lower than 700, you should wait and take measures to increase your credit before applying for loans.
Although it can be difficult, you can finance a business without a bank loan. You can cut back your budget and tuck away money to start your business within a reasonable timeframe. Or you can start your business on the side while not taking a paycheck just to get your business name out there and start drumming up business. You can also use credit cards for some of your expenses, but be careful about racking up debt, especially since credit cards tend to have much higher interest rates than loans.
While you may have a little bit of flexibility when it comes to some start-up costs, there are necessary expenditures you’ll need to prioritize. This includes your business insurance, business license, and fees associated with incorporating your business. Benefits of incorporation include paying a lower tax rate, flexibility in how you get paid, and protection from personal liability for business debts. You can avoid paying attorney fees by filing all of the paperwork yourself or using a formation service, which will handle all of the details on your behalf.
You'll also need to establish a business bank account, and potentially retain an accountant, bookkeeper, or other key professional service providers that can help you with the operational aspects of your business.
There will be many expenses that you can’t get around, but other tasks can be done using free tools. Find these options and use them, especially in the beginning stages of your business where finances are tight. One great tool is a file convertor. You can quickly convert Word to PDF to save important documents without losing the formatting. For instance, once you create an invoice for a client or contractor, you don’t want it to be edited easily or for the formatting to change through email. Using PDF as your file type will address those issues. Plus, you can easily password protect the file for extra security. Just find Protect under the Tools, and then select Encrypt with Password.
Commonly Overlooked Costs
When you're getting your business off the ground, there may be some one-time fees and expenses you’ll have to pay, as well as ongoing costs you’ll need to factor into your operational budget. For example, equipment and software investment may be steep to start, but will not be a regularly recurring cost. You’ll also need to think about legal fees, licenses, and special use permits, credit card setup, property and equipment rental, and if you're operating a storefront, you'll also need to factor in deposits for utility hookups, supplies, and things like signage.
In addition, budget for the creation of marketing products, and, if you're hiring staffers, fees associated with recruitment, interviewing, hiring, and training.
Many small businesses and entrepreneurial ventures start out small with a skeleton crew, in which case it could be beneficial to hire freelancers or independent contractors to help with various tasks and projects. For example, you may not need a full-time web designer on staff, but it can be helpful to hire someone to create a professional-looking site, establish a social media presence, and help you develop your marketing messages.
Project management is another essential part of operations, particularly if you are using consultants or allowing any staffers to work remotely. A good project management software system can foster collaboration and make sharing work products much more streamlined and efficient.
Financing the Early Days
For many small businesses, the early days of operation can be slow, particularly as you start building your clientele, launching your advertising strategy, and troubleshooting any start-up issues that arise. You’ll also have initial supplies and inventory to consider. As such, it’s important to budget for slow revenue for the first 12 months. Some small business owners don’t even take a salary themselves in the early days, but you’ll want to ensure you have the financial means to keep the business operational as you find your footing. Small business grants and loans can help, but you’ll want to be relatively sure of your financial projections before committing to terms.
Effective Planning for Financial Success
Consider your business and marketing plans to be living, breathing documents that you regularly consult to ensure you're staying on track with your objectives and meeting budgetary goals. You’ll want to continually assess your market penetration, customer cultivation, and revenue projections, and make adjustments accordingly if you stray too far afield of your business plan. And while there are some costs that you won’t be able to avoid, take advantage of free and inexpensive tools that can help you manage your expenses while building up your business.
Join the Derby Chamber of Commerce to network with other local entrepreneurs and access valuable resources for helping your business grow.