You have what you think is a brilliant idea for a new business, or you have an entrepreneurial seizure thinking that you can have more money and more freedom if you run your own business. So you set up in your business venture with high expectations.
For the first period of time, could be 6 months, could be a year or perhaps longer, you are excited and working super hard to make the business work. Hopefully, some income will start trickling in and increase month by month.
But you are working long hours and there just never seems to be enough money to pay the bills in the business let alone your living costs. If you had money saved, this will be dwindling away, you will be increasing the balances on your credit cards, borrowing from family and friends, taking out personal loans and so on, trying in vain to keep the dream alive. By now, you will be stressing about the money situation – or rather the lack thereof, having sleepless nights, potentially arguing with your loved ones and generally losing the spark of excitement and enthusiasm for running your own business.
The No. 1 mistake you made at the very beginning, before you started the business, was in failing to calculate the amount of money you would need to pay your living costs whilst the business started, and the amount of money you would need to get the business up and running.
According to most research, the biggest reason for business failure is cashflow. I contend, that the biggest reason is not cashflow, it is the lack of planning prior to commencing the business to determine the amount of money needed to fund the business start up.
This is called working capital. Every business needs working capital, initially when starting up the business, but also as the business grows and bills need to be paid to fund the growth.
When the figures are put together to determine what the working capital requirements are for the business, you know exactly how much money you need and when you will need it. In this way you can take the necessary steps to ensure that you have sufficient funds to meet the bills. Your stress over the financial position will be minimised, your excitement and enthusiasm will be maintained and your relationships with your loved ones won’t suffer.
For some people, the reality of exactly how much money you need to get the business up and running will mean that you may need to delay starting and work a while longer to build up the funds to ensure your success.
The time and money invested in obtaining advice to determine the working capital required to start the business is worth every penny and more. Take the time to work out the numbers and make sure that your business will be in the small percentage of businesses which not only survives but flourishes into the future.
