When you are starting your own business, it’s an exciting time and it’s easy to get carried away!
Unfortunately, the majority of new businesses fail – and most do so because of money (well, the lack of it anyway!).
So how do you stop yourself being a failure statistic?
The first thing is to stop and plan – take some time to work your finances out. This can be frustrating when you are eager to get started but it’s critical!
Start by deciding if you are going to work fulltime on the business or start just in your spare time. If you are going to start whilst you still have another job it can make managing the finances much easier but it will take longer to build your business! Either way, you need to carefully work out how much money you need personally to live on each month. Write down all your monthly bills (including food, fuel, social spending etc) and don’t forget to allow for saving each month for holidays and annual bills such as car insurance.
You should now have an amount that you know you need to arrive in your bank account each month. If you’re going to get that from your current job (and you will continue doing it!), that’s great because it means you don’t need to start taking a wage from your new business just yet.
If you will work in the business fulltime or will reduce the hours you currently work to get your business started then you now know how much you will need to take from your new business each month.
Now the bad news!
Don’t expect the new business to start making money straight away. That means you need to have some savings you can draw from each month that you can live on until the business can afford to pay what you need. This is the mistake that many new business owners make – they think their idea is brilliant, that people will start buying immediately and that the money will start rolling in – but real life isn’t like that!
Make sure you have enough money saved so you don’t have to rely on any from your business for at least 6 months – ideally up to a year. This removes a lot of stress from setting up your business and makes it much more likely that it will succeed!
But that isn’t the end of planning your finances. You now need to work out how much it will cost to set your business up – what equipment, premises, resources and supplies do you need? What insurance will you have to buy? What will you have to spend on marketing to get the business going? Don’t forget things like laptops, banners, business cards, stationery as they all add up!
So, to summarise:
Running out of money is the reason most new businesses fail. You can avoid this by carefully planning your finances before you start – even though you are really keen to get going!