The Key To Long-Term Success For Startups
Planning on starting a small business? Sound financial planning from the start is a key component of long-term business success, and it extends beyond building funds in business accounts to securing personal finances. Having a strong baseline of personal savings provides a starting point for overall savings to fund a new enterprise and support ongoing expenses after your company launches.
Personal finances
New businesses rarely start generating revenue immediately, and it could be several months to a year or more before you start paying yourself a salary or a salary matching your former income. When starting a business, you need to have sufficient personal savings before quitting your existing job. How much you need to save is generally based on your average monthly household expenses multiplied by a reasonable safety net, such as six months. Dual-income households may opt for a smaller safety net due to the presence of a reliable monthly income. Additional considerations include factoring in the potential for increased costs of benefits, such as health, life, dental and eye insurance, as you leave a payroll job.
Business savings
As part of your business plan, you need to assess projected expenses for your enterprise. This includes fixed costs, such as a storefront, website, and utilities, to flexible costs like inventory. Consider the amount of time it may take for your business to become profitable and start saving. This capital is key for providing your business with the ability to pivot in its formative stages as new opportunities arise.
When you plan on financing your new venture with loan funding, you need to consider the amount of equity lenders want you to bring to the enterprise. According to the Small Business Administration, or SBA, a 30% equity stake is a common demand. This means you need to be prepared to provide approximately one-third of the funds needed to keep the startup going during the ebbs and flows it will experience.
Need help?
Financial planning services can help you establish firm financial footing as you start a new business, and they are available through both private firms and certain governmental agencies. The SBA provides a variety of services for potential business owners, including counseling and advice from experts. Local universities, business incubators, and economic development entities also provide access to business planning services ranging from marketing to budget planning.
If you need more help, contact a financial planning company like ccrwealth.com.