Financial Plan for a Business Startup
Business planning is essential for any startup company and financial considerations are a vital component of any business plan. New business ventures must consider how much money they need to open their doors, how much money they expect to bring in during the early days and how much outside financing is needed to get off the ground.
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Startup Costs
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The money required to set up your company and open your doors can include hidden expenses that push initial budgets. Taking the time to create a thorough budget for startup expenses is vital to ensuring that you have everything you need to set up properly. Common business startup expenses include legal consultation fees, registration and filing fees, land, buildings and equipment. Consult with others who have started their own businesses to uncover expenses that you may not have accounted for on your own.
Operating Expenses
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In addition to startup costs, new businesses must have enough money on hand to run their operations before money starts to come in. The period between opening your doors and bringing in adequate revenue to cover your costs can be relatively short, but money can slip through your fingers at this stage. Funding for things like the first month's inventory, salaries for grand opening employees and the first month's rent and utility payments should be considered before starting a business.
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Projected Income
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An entrepreneur must estimate how much money will come into the business in its early growth stage. Creating a projected income statement showing expected sales and the expected rate of sales growth can help you to get an idea of how your initial income will compare to your initial expenses. Projecting sales for a business startup can be more challenging than for an established business, which can use past years' data as a starting point. New business owners must consider the expected results of their marketing efforts.
Funding Sources
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After determining how much money it costs to open your business and how much money you plan to bring in during the growth phase, you will have a good idea of how much money you need to raise to keep your business running smoothly.
Consider the pros and cons of each funding source before pursuing any. Bank loans accrue interest and impose fines for late payments, but you retain full control over the use of funds. Investor financing can be less costly, but with the disadvantage of having another management voice at the table. Money from friends and family can come with few strings attached, but defaulting on personal loans can damage relationships.
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