Business entrepreneurs are an important part of the economy; not only do entrepreneurs find new solutions to life’s problems, they also build businesses that employ others. They become vital partners in our communities and help propel humankind forward. 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 proactive to turn your idea into a thriving business. Here are some questions to get you started thinking through the costs of starting your new 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 product or service special — what niche are you filling that will draw in your customers? It’s worth thinking this through before you invest any financial resources.
What Are My Initial Costs of Starting a Business and How Can I Find That Money?
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. Your list 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 savings and credit, banks, private lenders or family members/friends.
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. 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. According to a 2018 Inc. 5000 CEO survey, only 28% of CEOs who responded started paying themselves immediately, 31% said they waited a year and another 18% said they waited two years before they took a salary. Even when they did begin paying themselves, 45% of responding CEOs said they paid themselves less than $50,000. 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.
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 that would indicate 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.
Once you’re ready to take the leap, contact a Farm Bureau agent about ensuring that your new business is protected. We’ll be there with you every step of the way.