One of the first components to be considered by anyone that is looking at purchasing (or starting) a new business is financing. The obvious notion of having the funds to purchase the business is only one aspect of what a new business owner should know / consider in relation to the financial system of the business. In reality, the finance aspect of a business is far reaching and impacts most decisions that are made within the business…

With all the factors involved with starting a new business, why do I want you to focus on the money part?

You’re probably thinking it’s obvious because that’s one of the key reasons you wanted to go into business in the first place. To make more money than you could, working for someone else.

While that is true, I don’t want you to focus on just the end result of money. You’ll need to consider start-up and operational money as well. Compare it to a farmer planting his crop; he will have operational costs before he sells his harvest. It will be of little value for the farmer to dream of the wealth his crops will bring if he doesn’t have the money to plant and nurture the crop until it’s ready. The same applies to your new business.

I get it. You’re excited about starting a new business. The juices are flowing and you’re eager to get it up and making money. While it is great that you’re driven to succeed, you’ll need to harness some of that optimism so that it doesn’t get you into trouble. Too often new business owners over estimate how many customers they’ll have and their ability to satisfy them.

It isn’t a matter of whether or not you can succeed. It’s a matter of whether or not you are asking the right questions?

3 Questions to Ensure Your Success in Your New Business

What you’ll notice about the following questions is they are all connected to budgeting. Like it or not your new business will not survive without the budgeting figured out.

Are your revenue numbers reasonable and attainable?

I recommend that you cut your revenue numbers in half and double the length of time it will take to get there. This isn’t to deflate you. It is to defend you against possible setbacks. When I meet with new business owners I talk to them about variable or probability budgeting as a method of creating numbers that are reasonable.  Variable budgeting generates a range of scenarios often with the headings of; conservative, likely and optimistic.

Have you considered all the possible outcomes?

Variable or probability budgeting allows you to look at multiple outcomes based on the probability or potential of them happening.  They will open up your view to the “what if” my projections are wrong? “What do I do if I miss my targets”?  “What costs can I cut”?  “What is the minimum or break-even number that I need to achieve”?  And on the positive side, if the business takes off, “what am I going to need in terms of capital for inventory, additional space or employees”?

A business without a workable budget is a great way to go out of business quickly.

Have you allowed for timing issues?

Some of the issues that you are going to have to account for are timing of; inventory purchases, deposits, annual items, capital investments (that are not on the expense list), receivables and payables and of course the potential for losses for the first month(s), year or however long you think it is going to take to get to your break-even point.  This is a vital aspect in you being successful.

You need to know how much money you are going to need to operate until there is cash flow.  You need to know when it is going out and when it is coming in so you can budget expenses.

For instance, if you sell an inventory item and you allow on account sales, accounts receivables or you sell your inventory on net 30 days terms, you will now need to buy replacement inventory before you get paid for the previous sale.  This scenario can create cash flow challenges or inventory shortages that may result in loss of customer satisfaction.

If budgeting isn’t your strong point, and often it isn’t with most new business owners, you have a couple of options. First, you can take a class and get trained in this skill. Second, you can work with a bookkeeper or accountant / financial advisor.  Either way, if you have purchased or started a new business, asking the necessary questions about money and working with a budget is key to the future success of the business.