Starting a business during a pandemic may seem challenging, but with the correct financial steps, it can yield entrepreneurial success. In addition to financial planning for the business, you should evaluate your personal finances to make sure they are in shape before starting your venture.
Getting Personal Finances in Shape
Many entrepreneurs fund at least a portion of their business start-up on their own. Before beginning your new venture, you will want to prepare by cutting expenses, paying down debt, funding your emergency fund, and setting a monthly budget. You will also want to prioritize your spending and saving as you prepare to start your business, then stick to the plan.
Here are some questions to ask yourself as you evaluate personal savings and spending:
- Should my emergency fund still cover 6 months of expenses or should I save more since I am planning to start a new business?
- What should I do with the money I have been saving for a house or other large purchase? Should I put it toward my business or continue to save that money?
- Should I still be saving for college or retirement right now?
- How can I be more financially disciplined? Should I set myself a no-spending challenge or limit fun spending?
Financial Steps for an Effective Business Plan
Once you feel comfortable that your personal finances are in order and you have a plan to stay fiscally sharp, it’s time to make steps towards a financially successful business model:
- Write a business plan — The first step is to write a business plan that helps identify financial needs for the first year or two. Part of the plan will look at potential customers and sales. Where does your product or service fit into the industry market? Who are the competitors? The plan should detail your business structure, finances, potential difficulties and how you will overcome them, and labor requirements.
- Perform a breakeven analysis – When will revenue cover all of your business expenses, not just the expenses to produce the product or deliver your service? Estimate your revenue stream and expenses for the first year or two. Make sure to include labor, marketing, and overhead costs, such as rent, in expenses. Once you have determined your breakeven point, you can ascertain how much money you need to get started and begin running the business.
- Fund your business – Can you fund your business on your own, or do you need to raise or borrow the money? Do you want to approach a bank for a traditional loan or try crowdfunding? Crowdfunding sites connect business start-ups with potential investors. Some also offer a marketplace to start selling your product. Kickstarter, Indiegogo or GoFundMe are three popular sites that can help you raise funds from friends, family and the general public.
- Separate your finances — Establish a separate checking account for your business. Run all business expenses and revenue through this account. If funding your business on your own, make sure to keep meticulous records of funds you transfer to the business account.
With careful business planning on both the personal and new-business side, starting a business in a pandemic can be a success.
If you have questions about identifying expenses, projecting revenue, or financial projections, contact us today. We are here to help!