How much money is your new business going to make?
If you start your business thinking you have a great idea but have no idea as to what money you will be making is just not smart business. Essentially you have to complete an Income Statement for your business before you have even signed a lease or asked someone for money. We are serious. Wouldn’t you like to know how your business is going to perform in its first year? We would. Your lenders certainly will.
Please refer to the blog: 5 Steps to Validating Your Business Idea to find out how!
You have to find out now what sort of money you will be generating and what is going to be on the bottom line at the end of the year aka PROFIT.
You must estimate:
- Numbers of customers you will have
- How much they will be spending on an average purchase
- How much revenue you will be generating
- What your cost of Goods Sold will be
- How much you will be spending on Labor
- What other expenses you will be incurring
- What sort of money you should expect to see on your bottom line.
Yes, that is a huge amount of work, but let me ask you:
Wouldn’t you rather know what sort of money you are going to make BEFORE you go and spend all that money you need to make it happen?
And once you know that, you’ll be able to decide how much rent you can afford and how much money you can spend on marketing and whether you can afford to hire an Assistant Manager.
This is a tremendous volume of work but time well spent. Knowing ahead of time whether your business is viable will save you tons of money and a lot of sleepless nights thrashing around under the sheets worrying where the money is coming from to meet next week’s payroll. (And by the way I have been there and it is not fun.)
The Financial Forecast will speak volumes to you.
Typically new businesses run out of money because they also forgot to stick to their start-up budget and overspend with money they don’t have. Many overspend on leasehold improvements and fixtures because they think that the operational cash from their day-to-day business will pay down the excess. In most cases, early-stage businesses struggle to cover the expenses they have without putting the added pressure of having the operation cover start-up overruns as well.
How much Money do You Really Need?
So please set aside some money to help you get started and to carry you through the first critical and costly months of opening your business.
- Have a contractor give you a good idea what it’ll cost to do the capital improvements.
- Figure out what sort of equipment you are going to require and how much stock you are going to need to get out of the blocks.
- Make allowances for working capital and deposits on rent and utilities – those things can kill your cash flow.
- Look at your Financial Forecast and work out a Cash Flow statement. What dollars are coming in and what dollars are going out and when. Are you going to have receivables? Payables?
Once you have an idea as to what funds you require, you then have to decide where the capital is coming from. You’ll have some money and you can borrow some from somewhere, or someone can co‑sign a loan for you. You may be able to make an application for some government program funding.
Usually friends and family end up being your banker and that is okay. They will be a lot easier to deal with than a bank, but still, you want to be able to demonstrate to them that you have the wherewithal to pay them back.
« Your financial forecast will show them that. (we can do this for you!)