Starting your own a business is a dream for many people and can be an extremely exciting time. While it’s important to keep the ideas coming and the creative juices flowing, it’s also vital to know as much as you can about your startup’s financial landscape.
It might be tempting to put off seriously crunching the numbers, but bad bookkeeping may cause you a lot of problems further down the line. If you have an investor or are hoping to find one, they’ll want to see the figures before they commit. Stay clued up so you can answer any money questions that come your way and so you can give yourself some peace of mind too.
Here at Howlader & Co we have nearly 50 years of experience helping businesses of all sizes.
Read on to find out about the seven money-related questions every startup should know:
What is your financial forecast?
It may sound like a headache, but having an in-depth overview of your extensive revenue and expenses is crucial. You need to keep a close eye on what’s coming in and out, and keeping on top of your balance sheets as well is an important task if you want your startup to prosper. If you update your financial forecast every month with sales goals and expenses, then you should have a better idea of the health and future of your startup. Taking on a small business accountant who can keep an eye on the income and outcome will ensure your startup is staying on the right track.
How much does it cost to provide the product or service you are selling?
To help with your financial forecast, you should also calculate the costs of goods sold (COGS) or cost of sales, depending on whether your business provides a product or a service. This is the total cost of manufacturing your product or delivering your service, including the cost of materials and labour. Once you have established how much your product or service is going to cost to produce, you can start to think about the company’s potential profit and growth. You may initially want to keep costs as low as possible until your startup is more financially stable.
What is your break-even point?
The break-even point is the point at which your sales revenue exactly matches your total costs; any additional income is then your profit. You will need to carry out a break-even analysis as part of your initial business plan, by comparing your total costs (including fixed and variable costs) to the income earned from each additional unit sold. Once you have an extensive financial plan in place and a good understanding of how much money you have coming in and out, you will be able to plot out future business milestones.
How much will you spend on staff?
Employing staff for your startup can be a huge expense but is sometimes a necessary investment. It’s important to work out how much you can reasonably afford to spend on staff and recruit only once you’ve done the sums, as expanding too quickly may put the future of your startup at risk.
Do you have a cash reserve?
There are always going to be unexpected expenses or setbacks for any new business, and if you don’t have some extra cash set aside then you may one day find your startup in hot water. It’s therefore important that you create an emergency fund that you can dip into as and when you need, and have extra cash on hand to cover the leaner months.
What is your revenue growth rate?
Establishing your company’s key performance indicators (KPIs), such as your revenue growth rate, can really help establish your startup’s success. Revenue growth rate measures how fast your revenue increases (or decreases, as the case may be!) from one period to another. Being able to present a well-forecasted growth rate to potential investors will give them a good idea of how well your startup is able to grow its sales revenue over a period of time. Be sure you seek the help of an accountant to ensure you are providing accurate figures and rates.
Will future financing be needed?
If you’ve set clear business milestones, you may need additional financing to reach them. Consider whether you’ll reach out to new potential investors, or if it’s something the bank can help you out with. You’ll need to know your figures before you make the approach, so make sure all of your balance sheets are in order and ask your accountant to give you the most up to date forecasts. An investor will likely want to know how you’re planning to use their contribution, so be sure to include all the necessary details in your business proposals.
