In every start-up business, raising money is vital to get off the ground and to cover expenses. It’s crucial and challenging especially if you don’t have an amount in mind, and you don’t know where to get help in financing your business. The way you choose to fund your business could affect how you structure and run your business.
So, before taking a risk in putting all your money into starting your business, you should be able to know the ways on how you can get the money you need. Below are the funding ideas that you can do to finance your business.
Estimate start-up cost
First and foremost, you should determine how much funding you’ll need to launch your business. Every business has different needs, so you need to check your financial situation and know your vision for your business to give you an idea about the financial future of your company. Calculating your start-up cost will help you request for funding and attract investors. It can help you to estimate your profit, secure loans, even save money with a deduction on your taxes (such as medical expenses, transportation expenses, and miscellaneous).
Having a list of expenses can also give you a financial picture. The following are the basic and possible materials and services that needed financing:
- Equipment and supplies
- Licenses and permits
- Utilities (e.g. electricity, water, and rental fees).
- Employees’ salaries
It is also a good idea if you can talk to businesspersons, vendors, and service providers to give you an honest estimation for expenses.
Prepare your financial statements
Having a financial statement can help you attract potential investors or creditors. Usually, accountants are the ones who prepare for financial statements, but you may also use some software for you to be able to do it on your own. For small businesses, it comprises the balance sheet and an income statement. The former provides information about the business such as its assets, liabilities, and equity account while the latter is a report that shows the income the business earned over a specific period. It also shows the cost and expenses of the company. But you may just list down all the income, expenses, and the loss you have for the period for easy calculations.
You are actually preparing this statement for you to know your total earnings and how much you’ll pay to your investors if you have any. But again, you may still consider asking a professional accountant to help you prepare your financial statements.
Develop cash flow
Cash flow is the movement of cash into and out of a business, meaning, the money that you received in the business transaction (ex. Sales of goods and services) and the capital leaving the business (ex. Money for loans, purchases, and expenditures).
Cash flow has three sections. These sections designate the different ways cash can enter and leave your business. It could be cash from operating activities, cash from investing activities, and cash from financing activities. Know more about these three sections.
- Operating activities are cash used to run the everyday project of your business.
- Investing activities are cash used for investing in assets like equipment and securities.
- Financing activities are cash from loans and payments made to lessen loan balances.
By creating a statement of cash flow, you can identify the actual income your company received. Managing the flow of your money will lessen the possible surprises that you can encounter that will result in a cash shortage. Moreover, seek out advice from an accountant or your trusted business advisor to help you with the calculations.
Calculate break-even point
The Break-even point is where the business’ total costs or expenses and the total revenues are equal. It is important to know your fixed costs (ex. rent, utilities, wages), the revenue or selling price, as well as the variable costs like the materials and labor of production to help your company understand when one of your products or services start to be profitable or not.
According to Freshbooks.com, you can use the below formula to calculate the break-even points:
Break-Even point (units) = Fixed Costs ÷ (Price per unit – Variable costs per unit)
Here’s an example based on the source’s own example:
Your company produces soft drinks, and you are planning to launch a new flavor of a soft drink in the market. You want to know if this new soft drink is worth it on your finances. Using the above formula here’s the result of your computation.
P100,000 / (P25 – P21) = 25,000
| Fixed Cost | P100,000 (total for the month) |
| Variable Costs | P21 (produced per bottle) |
| Sales Price | P25 (per bottle) |
This shows that you need to have 25,000 new soft drinks in a month to get to the break-even point.
An important usage of this is it will help you with your decisions such as for improving advertising strategies, re-pricing your product or service to increase demand, and setting up your budget. By calculating the break-even point, it will support you in establishing a sales price to gain profit that will ensure a successful business.
Identify banks that would finance business
Banks are a very popular source of business finance. So, you must render your time to know which banks will help you provide funding for your business. You should be able to carefully consider the type of bank finance that you want as it will affect your cash flow. By loaning in banks, you need to repay the borrowed money at the agreed schedule. The repay amount will depend on the rate of interest and the size and duration of the loan. But sometimes, bank loans tend to be more available to businesses that are well-established or growing.
Identify banks that would finance business
Banks are a very popular source of business finance. So, you must render your time to know which banks will help you provide funding for your business. You should be able to carefully consider the type of bank finance that you want as it will affect your cash flow. By loaning in banks, you need to repay the borrowed money at the agreed schedule. The repay amount will depend on the rate of interest and the size and duration of the loan. But sometimes, bank loans tend to be more available to businesses that are well-established or growing.
In any case that you acquire a bank loan, you may enjoy these following advantages.
- You will guarantee money for a certain period.
- The loan can be short term or long term.
- You don’t need to provide the bank with a share in the business, or simply, the bank will not take any shares from your business.
- It will help you estimate the interest payments because of their fixed rates.
Thinking over money can be stressful, but it will help you a lot to start your business if you prepare, list-down, and estimate all the things that are needed to be funded to give you an amount that will help your business grow. Just give yourself time and do not rush to anything that might affect your business’ finances in the future. Remember to consult your trusted business advisor or acquaintance, as well as your professional accountant to guide you with the finances. Check out our blog section for more negosyo tips.
