10 step complete guide for starting a consulting business from scratch.
Assess Your Finances
When you start a new business, assessing your finances is crucial. These numbers include being able to track your sales and profits - but a smart business will need to account for much more than sales alone.
Here’s what you need to know about business finance and how to crunch the numbers for your new business.
What is business finance?
Business finance is the use of your company’s financial information to help you manage your money and make your business operations profitable and sustainable.
Why should you care about business finance?
You need to determine how you’re going to fund your new business and how you’ll grow it. If you don't understand the numbers, you’ll have a tough time building a sustainable, profitable business.
Start by performing a break-even analysis
One way you can determine the amount of money you need is to perform a break-even analysis.
There are many reasons you should conduct a break-even analysis. The most important reason when starting a new business is to determine profitability for your business.
You can also perform break-even analysis when you price a product or service, taking into account fixed rates, variable costs, and competitive pricing.
Finally, you can perform a break-even analysis to analyze your data to determine how much volume of sales you’ll need to be profitable.
What is a break-even analysis?
A break-even analysis is a financial tool that helps you determine at what stage your company, service, or product will be profitable. It’s an essential element of financial planning. Break-even analysis considers your fixed costs (costs that stay the same no matter how much your sales change), your variable costs (based on sales), and the average price (the average amount that your competitors price for their products or services).
The break-even analysis formula is Fixed Costs / (Average Price - Variable Costs) = Break-Even Point.
Assess your startup costs
To start a new business, your costs may include: design (your logo, business cards, website), licenses and permits, rent, utilities, marketing and advertising, manufacturing, salaries and wages, etc.
Once you know how much it will cost to get you started, compare that with the funds you have. Then plan how you’ll make up any difference.
But be realistic. For example, many companies offer small business loans, but they’re often expensive, require personal guarantees, and require you to be already operating profitably for a number of years.
Consider ways to leverage third parties to help you get your products or services to market more quickly. For example, traditional product design firms typically charge $50,000 to $100,000 (and often more) to help you design a physical product. You can save tens of thousands of dollars by working with experienced product designers on crowdspring to get a custom, professional product design.
Run smart calculations to determine how much it will cost to create your business will allow you to plan and think about pricing.
Grow your business with beautiful design.
Watch your expenses
Be extra careful to conserve your funds when starting a business. Don’t overspend.
Some purchases will be necessary and will make sense for your business, but others, like expensive and unnecessary equipment, will threaten your business’s survivability.
Set up a good accounting and bookkeeping system
In order to keep track of your finances, you’ll need to set up a bookkeeping and accounting system. This is important so that you understand your business’s cash flow and will also be important for tax-filing purposes. Your accounting and bookkeeping system will include income, expenses, capital expenditures, profit, loss, EBITDA, etc. For more, look at the section of this guide that focuses on business accounting and bookkeeping.
Choose the right business bank
Be sure you find a strong banking partner. For most businesses, the best banking partner is a smaller community bank. That’s because smaller community banks understand local market conditions and are built to service smaller businesses.
You don’t want to be one of a million business customers with a major national bank – you won’t get their attention and will quickly get lost in the crowd. This is especially important if you want to build a close relationship with a bank. For more, look at the section of this guide that focuses on how to find a great bank for your new business.
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