Launching a start-up is a daunting task, especially if you haven’t worked out the nitty-gritty of this endeavor. The most important work you have to focus on right now is not your branding, marketing, and hiring strategies, but your capital needs. Without sufficient and stable financial backing, every grand idea you come up with will always fall short. It’s simply unwise to introduce a new business to the market without the means to properly sustain it.
Maybe you have come up with the total sum you need and already have it in your bank. Before you do anything else, it’s worth rethinking how you came up with this amount. Was it a rough estimate or a duplicate of a competitor’s capital costs? Maybe what you’re referring to is your savings, and you hope it’ll be enough to get your start-up off the ground.
If you’re not confident about your current capital, here’s a simple guide to help you recalculate and come up with a well-informed decision.
Detail is Key with Your Business Plan
How does your business plan look like right now? For yours to be efficient, it has to be as detailed as possible. This is true regardless if you’re starting from scratch or you’re franchising. The cost of opening a sign printing business, for example, depends on demand, location, and other factors that will impact your revenues. Fortunately, there are general guidelines you can work with to create a financially effective business plan.
Your forecasts should extend to an entire year or more, depending on the industry you’re entering. Include detailed descriptions of your products and services and the methods that you’ll use to market and deliver them to your audience.
The next step is to create a timeline so that you’re aware of when these strategies will be implemented. In what month will you participate in live selling? Which software do you need premium access to? Once all of these are in place, you can create close estimates of the budget that needs to be allocated for each one. Make sure to include revenue projections as well to know the minimum you need each month to continue operating.
Include Everything in Your Product Development Plan
This is where you have to be extra meticulous in your research because you can’t afford any miscalculation that will jeopardize the very thing that will bring in your revenues. Speak with as many suppliers and vendors as you can and narrow down your options based on quality, reliability, and pricing. Done? If you think this is it, then you’re gravely mistaken. Your product development costing must include your personnel, marketing, and facilities budget.
Your personnel budget must include forecasts of the number of people you’ll need to create or manage your products. Split them into different departments and identify the specialists and seasoned professionals that are integral to each team. Now that you’ve broken them into smaller parts, it’ll be easier to list what equipment and facilities they’ll require to operate. Perhaps you need a bigger warehouse than you anticipated, as well as a larger quantity of devices to meet your quota.
Don’t forget your administrative expenses. You’ll want to know just how much your accounting, legal, insurance, and office supplies fees will cost. Put all of those in and don’t hold back just because the numbers shock you. Any unrealistic projection you made because of your discomfort will bite you once you launch your business. If there’s any adjustment you want to make, do it after you’ve finished your first draft. This will make any changes more coherent and streamlined to your objectives.
Draw a Line Between Launching and Operating
Here is where most entrepreneurs tend to make their biggest mistakes. They either neglect their operating costs or they assume that their revenues will cover them. Even with a revenue forecast, you can’t assume that you’ll always hit the figures you indicate in your spreadsheet. It is therefore a must that your capital is inclusive of your launching and operating costs.
To determine how much you need to operate, use your revenue forecast and add up the amount per month. Get your predicted monthly expenses and subtract them. What you’ll have is the cash deficit. Next, add it to the cost you need to launch your business. The sum you get is your startup capital. Since you want to practice caution and have extra funding where needed, add as much as 20 percent to it.
As a rule of thumb, keep your revenue forecast in the lower range. Playing it safe is playing it smart when computing your start-up capital. It’s time-consuming and stressful, but putting in the work needed to come up with a good sum can mean the difference between your failure and your success.
