5 Financial Steps To Starting A Business

Of all the considerations that must be taken prior to starting a small business -like the business plan, marketing and advertising, personnel, etc.- the financial aspects are the most important. This doesn’t mean that finances should be considered first; in fact, the very first step an entrepreneur should take is to carefully think about the business idea at hand and make an assessment of the strengths that will carry her or him into the often merciless world of commerce. Once that has been accomplished, financial considerations may follow.

Since every business is different, the following five financial steps to take before getting started may not apply to all entrepreneurs, but they should at least be considered. Some of the steps will involve decision-making, while others are simply meant to function as advisory:

1 – Financial Analysis:

This is a mandatory step that should be clearly stated on the business plan. This cannot be done haphazardly, and thus it is recommended that planning or accounting software be used to determine just how much money the business will need and how much it reasonably stands to produce. Business hopefuls who plan to get loans or money from investors will not get too far without a solid financial analysis.

2 – Funding:

This is another step that should appear on the business plan. For some business owners who have some cash set aside for special occasions, it may be tempting to throw it all at the business. This may not be such a good idea, since a business venture involves a certain degree of risk. A good analogy to think about here is playing the lottery, hitting the blackjack tables in Las Vegas or buying stock on Wall Street. The only money that should be put at risk is the money that isn’t needed or will not be missed if it evaporates. Whatever the source of funding, it should be stated on the business plan, and it may be in the form of loans, gifts, credit cards, a home equity line of credit, etc.

3 – Savings:

Starting a new business often means going without income for an unknown length of time, sometimes until the break-even point is achieved. Depending on the industry, this could take months or even years. The financial analysis should always include the salary of the business owner, but there’s always the possibility that the sales may not be sufficient to cover expenses, let alone salary. Lack of savings is one of the main reasons behind small business failure.

4 – Health Insurance:

This is a thorny issue for entrepreneurs who are going from a full-time job with benefits to self-employment without guarantees. If a business owner plans to hire staff members who must be given health insurance due to state or federal labor laws, then that cost should be on the business plan. For entrepreneurs who are starting a business without employees, going without health insurance could be hazardous. The monthly premium of an adequate health insurance plan should be figured out in the salary of the business owner.

5 – Maintain Debt Ratios:

Getting approved for a business loan for the first time can be an exhilarating experience that could start an entrepreneur on the path to cumulative debt. Once a small business begins operating, the offers for credit cards and additional loans start to rain. While the availability of all that credit is certainly tempting, entrepreneurs should beware that getting into deep debt can quickly erode the bottom line of a business. Accountants and small business advisors are the best sources of information for learning just how much debt can be taken on.

By taking the time to assess how you want your business to progress financially, you can save yourself a lot of time and money in the long run. Take these 5 steps and integrate them into your business plan to ensure your success!

Author Jessica Stevens is a financial consultant and content contributor for wisebread.com, a site offering reviews on some of the best travel credit cards and great money tips for living large on a small budget.