Starting a new business is an exciting venture requiring careful planning and consideration. A financial calculator should be an essential tool in your toolkit. Before purchasing inventory, seeking a commercial loan, or hiring your first employee, it’s crucial to tally up the costs of launching your shop. This step will clarify whether your dream is attainable and help you avoid turning an ambitious idea into a fleeting fantasy.
How To Predict and Budget for Startup Costs
Some expenses are a one-time affair, but others are recurring. Rent, utilities, wages, and taxes will come at you every month, but fixtures and licensing fees should only hit once and be done. You’ll also need to determine fixed recurring payments that will change over time. Rent will most likely stay the same from one month to the next, but the cost of goods and shipping may change depending on the economic climate.
There’s also the time to gather and establish a business, during which you may not have the same income level, especially if you’ve left a job to pursue a new company. When figuring out a seed total, having a nice round number is easy to get your head around, but try to make sure it’s a rational reflection of the actual monetary and physical investment.
Securing Your Seed Funding
“You’re supposed to predict what you’re going to need in the next 18 months,” said Josh Miller of Branch at a Business Insider’s Startup 2012 Conference. Miller set his seed total at $1 million and managed to double it for his startup but wasn’t exactly sure how much he would need. “We have three co-founders, and we can build the product alone. And if it doesn’t take off, well, then we don’t need anyone. There’s no way to predict that.”
Brad Hargreaves of the General Assembly had similar advice: “Seed stage raises as much as you possibly can… You can actually calculate how much you need for 18 months of runway. The way you decide how much to raise changes depending on what stage you are.”
Learning From Competitors: Financial Fitness Insights for Success
Sometimes, looking at other businesses in your market can give you an idea of what to expect in terms of costs and overhead. There are publicly traded companies, and some publicize their expenses, or you can pursue contacts within local or national companies to get financial data to help you plan for the months ahead. The U.S. Securities and Exchange Commission keeps records of quarterly reports, tax filings, and other forms that can be helpful when trying to work your own financial calculator. You may not be operating at the same level as a national chain just yet, but proportionally, their expenses could be similar to yours, so be aware of entity sizes.
Understanding Valuation To Attract the Right Investors
When you seek out investors, be sure you know what your business is worth, whether it’s a total of liquid, physical, or time assets. Little things can impact what investors are willing to give you, critiquing everything in a business plan, from the concept to the intended market to the name you’ve chosen for your business. Having already looked at competitors in your area, you should be able to provide information to potential investors showing how similar companies have done. Even if you aren’t turning a profit yet, proving the likelihood that revenue will be forthcoming will appeal to investors and show that you are on top of things.
When deciding on your seed amount, don’t just wing it! Put in the effort to research and calculate your expected costs upfront. This approach helps you create a solid financial plan and makes your business venture more appealing to potential investors. Take the time to lay a strong foundation for your startup—it’ll pay off in the long run!