It takes much more than a good idea to create a successful small business. Without a game plan and certain financial preparations, even the best ideas might not ever turn into profitable companies. For many businesses, their ultimate success — or even survival — depends on the preparation that owners put in before the company ever opens its doors. Here are some of the major money moves that small-business owners should take before they launch.
Capital is the lifeblood of any business. Generally speaking, no matter how much you think you need, you’ll end up needing more. Not only will you need funding to get your company off the ground, you’ll need reserve capital as well for times when business inevitably slows down. It can help to talk with a business expert when launching your company so that you don’t overlook any necessary spending categories. Depending on the type of business you’ll be running, you may need money for everything from equipment and supplies to employee salaries, marketing, rent, insurance and furnishings, among many other potential costs. Many small-business owners use their own funds to start their companies, but you can also raise capital from additional investors or take out loans.
Create a Detailed Business Plan
Just as you can’t arrive at your destination on a road trip without a map, it’s almost impossible to chart out a path to financial success for your business without a business plan. In addition to spelling out the goals and objectives of your business, you can use your business plan as something akin to an enhanced budget. Your business plan should itemize all of your anticipated expenses, from the cost of goods sold and labor costs to equipment, marketing, business licenses, taxes and more. Planning ahead financially can help you avoid any unpleasant surprises once your company begins operating.
Set Up the Proper Format for Your Business
Many entrepreneurs launch their businesses as sole proprietors, but there are a number of different types of business entities you can use. For some businesses, a limited liability company, or LLC, is the way to go, while others might prefer an S-corp or a C-corp. Each business entity has its own pluses and minuses, so you might want to speak with a tax expert to help you determine which one makes sense both financially and in terms of protecting your personal assets.
Work With a Good Business Lender
Even if you don’t need to borrow money to start your company, you’ll likely need business financing at some point. Credit unions and local banks are often good partners for small companies, as they understand the regional business environment and can often be flexible with terms and credit products. It’s better to create a relationship with a good business lender before you need its services so that when you’re in need of a loan or other financing option you’re not starting from square one.
Set Up Different Business Accounts
Separating your business and personal bank accounts is a smart way to make your life easier. You may think that your small business is not complicated enough to require separate accounts, but if nothing else, you should prepare for the time when that is no longer true. Keeping your business accounts separate makes it far easier to keep accurate accounting records and file your taxes properly. Additionally, keeping separate business accounts makes the financial life of your company easier to compartmentalize. For example, you may want to have separate bank accounts for operating expenses, slush fund money and long-term investments. But even if you aren’t yet at that stage, keeping your business money separate gives you a much clearer picture of where your company stands financially. It can also be particularly helpful in case your business gets audited.
Test Your Market
No matter how compelling you find your business idea, it makes financial sense to ensure there’s a market for it before you spend all the money to start a new company. Get feedback from potential customers via prototypes, marketing questionnaires or even a soft product launch before you jump wholeheartedly into the business. Sometimes, the most financially prudent move for a company is to delay opening until it can be proven that financial viability is likely.
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