Are You Financially Prepared to Start a Business?

Dec 18, 2023 3 min read

Business entrepreneurs are an important part of the economy. Not only do entrepreneurs find new solutions to life’s problems, but they also build businesses that employ others. 

However, only half of new businesses make it past five years. It’s not enough to have a good idea — you have to prepare financially, manage cash flows and be nimble in order to turn your idea into a thriving business

How to Financially Start a Business

There’s no way around it: Starting a business costs money, and how you choose to fund your business could affect how you structure and run your business down the road. Funding your business is one of the first — and most important — financial choices most business owners make. These questions can help you start thinking through the costs and if you can afford to start a business venture.

What Problem Am I Solving?

This basic question is the key to your success. When you provide a solution to someone’s problem, you create an interested potential buyer. If your product or service isn’t meeting a need, you will find it difficult to succeed. 

What makes your business idea special? What niche are you filling that will draw in your customers? It’s worth thinking this through before starting a business financial plan or investing any financial resources. Key things to consider include:

  • Your mission. What problems will your products or services solve?
  • Your highest priorities. What are the top things you need to tackle to get your idea off the ground?
  • What you need to be successful. How much money, time and equipment will be needed?
  • Key differentiators. How are your products/services unique among your competitors?
  • Industry trends. What is happening that illustrates the need for your business?

Do I Know How to Finance a Business?

The costs of starting a business can quickly stack up; determining the absolute minimum costs required to get your idea off the ground is essential. Basic expenses can range from $5,000 to $10,000 minimum. Your list of start-up costs should be exhaustive — things like inventory, technology, licensing/certifications, legal fees and rent may be applicable.

You should also consider where you might find this capital, like your personal savings and credit, banks, private business loans, family members/friends or grants. 

What Will My Ongoing Costs Be and How Can I Cover These Expenses?

The monthly expenses to keep your business running will begin right away; you should account for these separate from your initial costs. These business costs include things like rent, business coverage, salaries and inventory replenishment. Don’t forget to account for hidden costs like repairs, merchant fees and permits or licenses. It’s best to have three to six months’ worth of cash on hand to cover your business’ operating expenses.

You need to determine your break-even sales point so you can ensure you have everything in place to meet that goal and stay afloat. An important piece of this is to understand your target market and how you’re going to connect with them. You might even try to line up customers before you officially open for business.

How Can I Take Care of My Own Financial Needs and Meet the Needs of My New Business?

While entrepreneurs make personal financial sacrifices to get their businesses off the ground, you have to ensure that you are meeting your personal financial obligations, including your emergency savings fund and retirement savings.

If possible, consider starting your business while continuing to work elsewhere to ease the financial burden on your new business and ensure that you are taking care of yourself. 

While you may want to quit your job and go all-in on your new business venture, unless you have the financial security to live off your savings until your business starts to thrive, it’s best to avoid quitting your full-time job. Before you start working on your business, it's important to set a financial goal that signals when it's time to quit your day job. 

Where Do I Want to Be Financially in the Future?

Set financial goals for the future. Where do you want to be in six months? A year? Two, five and 10 years? You should also set goals at regular intervals, taking time to step back from your business and re-evaluate the finances of continuing.

Be realistic with your projections and goals so that you have a financial plan that allows you to make decisions in context of your ultimate business goals. Set “SMART” goals (specific, measurable, attainable, relevant, time-based) to help you on your journey. Starting a business doesn’t just happen — you need to create a plan with measured steps to get there.

We’re Here to Help

Once you’re ready to take the leap, contact a Farm Bureau agent about ensuring that your new business is protected and you have guidance you can trust. We’ll be there with you every step of the way. 

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.