If you have followed some of our previous posts, than you know we are stressing the importance of understanding your financial situation in order to plan correctly. Most notably, understanding small business accounting and taxes and how they impact your small business strategy.
In order to grow your business, then you will need a plan of action. Naturally, part of that plan must include costs.
How much will it cost to get going?
The SBA offers a nice overview on how to estimate the cost of starting from scratch and how to guesstimate your starting costs. The essentials are pretty intuitive:
- Identify and List Expected Expenses (standard things like your web site)
- Identify Things You Need (known as “capital expenditures” and would include Photoshop for an artist)
- Establish your Runway (how much money do you have to start and how much are your monthly expenses? the difference is your runway – how much time you have (measured in months) to find customers that pay and cover your monthly expenses)
As an entrepreneur, then your business may also be your main source of income. If this is the case, then many of the guides relates solely to your business health. You will also need to calculate your personal living costs. If you need your business to provide monthly income to pay your mortgage or rent, then it is important to understand prior to quitting your job. The beauty of the plan is simple: now you know you need to save some more money in order to start your company full-time and still afford your house.
Kabbage, which looks to connect entrepreneurs with access to funding, provides an extensive list of Small Business Guides:
- Funding and Financing
- Optimizing and Streamling
- Workplace and Culture
- Technology and Inventory
Interestingly, there are about 3X the number of guides for funding and financing as there are for workplace and culture. As the saying goes: It takes money to make money.
But does this make sense?
Obviously, businesses have expenses. Products take money to develop. Social media and blogging enables you to find your voice, but PPC campaigns require budgets. It takes time to build an organic following, perhaps years and definitely months.
Why does this matter?
If you need funding and look to external sources (especially outside of your beloved friends and family), then investors need to connect to your mission.
And your mission guides your workplace and company culture. The mission helps drive engagement with your prospective customers, so it helps drive growth.
Often, people focus solely on money (which is important), but in the search for funding, don’t forget why you started your company. The mission resonates not only with customers, but also investors.