When to know if you have enough money to start a business
Your business-your dream
Having a fair knowledge of your funding needs in terms of cost and income is crucial during the startup process. Starting a business is not something one must be hasty to undertake, as it comes with so many hurdles that must be properly checked. You may be all excited with that next big business idea and in the haste to implement it, some mistakes may be made. The first issue has to do with checking if the business you are contemplating going into is viable or not.
The major reason why most entrepreneurs must be conscious of the viability or profitability of a business is that it will help to accelerate your path to breaking even and creating a long term profitabi1lity. The amount of money needed for startup and staying in business, vary from one business to the other. Thinking of starting a provision store business will require a different level of funding compared to starting a buying and selling of cement business.
Can you fund the business?
The fact we must all come to realize on our entrepreneurial journey is that some business can consume so much of our finance than others. That means one must be absolutely sure of the nature of business one is going into before venturing out. Be absolute realistic about the business to avoid any possibility of financial disaster. Find out as much as possible about the business as possible, because the more you know about the business, the more the rate of success of the business.
You carry out a feasibility study of the business involved. The feasibility study will help to further confirm if the business will be practicable and profitable at the long run. A feasibility study’s main goal is to assess the economic viability of the proposed business. The feasibility study needs to answer the question: “Does the idea make economic sense?”
The study should be able to provide a thorough analysis of the business opportunity, including a look at all the possible roadblocks that may stand in the way of the company success. The outcome of the feasibility study will indicate whether or not to proceed with the proposed venture. If the results of the feasibility study are positive, then one can proceed to develop a detailed business plan
Get a comprehensive list of all the items needed for start up
There are two types of cost involved in business startup- The variable cost and fixed cost. The fixed cost are those items that are ongoing cost which must be serviced on a monthly or yearly basis, like payment of shop rent, payment of utility bills and payment of staff salary. On the other hand, variable costs are simply expenses that are dependent on the profitability of the business. The more income a business brings in, the more the variable cost. Cost of raw material is a classical example of variable cost which must be factored into the business startup plan.
Carry out a cash flow analysis
Carrying out a detailed cash flow analysis is always advisable for business startup. A standard cash flow analysis is usually for 12 months duration. It gives an estimated projection of your business income and expenditure. Starting a business is easy, but sustaining it is where the real job begins. So many run into setting up a business and end up in loss from onset due to lack of diligence not been carried out.
Carrying out SWOT Analysis
SWOT analysis (strength, weakness, opportunities and threats) is a technique used for assessing a business, it resources, and its environment. This sort of analysis is very useful to the average entrepreneur, to have a good idea of its business as well as the market available. The SWOT analysis also opens options available for potential investors. When a thorough analysis has been carried out, it gives the individual an insight about his preparedness for starting the business based on the requirements outlined.
Know your breakeven point
Breakeven point (BEP) represents the point at which revenue internally generated by a company equals to expenses (fixed and variable cost). Simply put, it implies a situation where your revenue covers your expenses. The total profit at the breakeven point is zero. This information usually provides an important benchmark for long term planning such as sales, production and operation. If your breakeven point is higher than your expected revenue, you’ll need to reconsider certain aspect of your business plan like whether the business is actually profitable or if the funds available are enough to start a business.
You need to have sufficient funds in reserve to sustain yourself during this period. A detailed cash flow analysis will help confirm if you’ll need to request for special loan facilities or if you are financially prepared to kick start your business. An accountant or a financial consultant will be in the best position to help you out in this regard. Whatever advice he eventually gives must be applied to the letter.
Based on the above projection above, you will be in the best position to know if you have enough money to start a business. If the projected figures give a positive result, you can go ahead and put everything in place to start. If the projection is negative it is usually advised to hold on till the needed funds can be sourced.