Below are five key tips for people looking to start a business and help them get to grips with the financing of their project.
Keep costs low
It is natural to want to buy brand new, state-of-the-art equipment but is it necessary? Can you obtain cheaper alternatives that do the same job? Instead of getting carried away, remember you can upgrade later when there is more cash in the company. Think about buying second-hand at first. Or, why not barter services with others in a similar situation? This is called reciprocal trade. For instance, a web designer who needs a new laptop could build a website for someone who sells IT equipment. No money changes hands but each gets the job done and paid for in trade. Premises are always a big expense. Research the option of working from home, having a virtual office rather than renting or buying expensive office space.
Understand your figures
Whether or not you employ an accountant to do your books, you need to know what they mean. You cannot run a company efficiently unless you know what products, or services, provide the best margin and which sell the most. How can you reduce costs if you don’t know what those costs are? Spend some time with your accountant or seek out a business support service in your area for advice to ensure you understand what the figures mean and how they affect your business.
Turnover is vanity, profit is sanity and cash is reality. Many profitable firms go out of business because they get the cash flow wrong. Having profitable, well-paid work on the books is no good unless the cash flows in to enable you to pay your bills. It is vital to estimate, with as much accuracy as possible, your incomings and outgoings so that you are in a position to foresee any shortfalls to cash coming in. With this information you are in a better position to overcome the problem by negotiating an overdraft facility, or take other measures to increase cash coming in and reduce cash going out.
Don’t over-estimate your sales or under-estimate your overheads. How many units can you realistically sell? It is usual to start slowly in terms of sales and then to increase them over time. Many, if not all, products and services sell better during certain times of the year. So be sure to take this into account, put a little aside and always be prepared for a slump in sales. If you remain realistic and prepared you can avoid difficulties later down the line and be in a better position for recovery.
Simply, keep a record of everything financial. Keeping accurate records will save you a lot of time and hair-pulling come January when you have to file your tax return. As a general rule, you need to keep your financial records for six years. What records you keep depend on the size, structure and complexity of your businesses but as a guide you will need to keep a log of all sales and takings including sales invoices, till rolls, bank statements, paying-in slips and accounting records. Also you need to keep records of all expenditures including receipts, purchase invoices, bank and credit card statements, motoring expenses and mileage records.