Starting Your Own Business
Financial Requirements

Starting your own business – understanding the importance of having the financial requirements in place.

For most small businesses, there is a gap between starting your own business and when you begin to produce income. In fact, most management consultants who specialize in small businesses suggest that you have at least 6 months of savings available for the start-up phase of your business.

Of course, this number will vary depending on the type of business you decide to start. Service businesses and home-based businesses are a favorite choice for many because the start-up costs are considerably lower than other businesses.

Before you make any decisions about starting your own business, you need to develop a monthly plan of saving and spending. This will help you identify how much money you will need each month to live. Also, it will tell you if your dream of owning your own business fits with your other dreams such as sending a child to college.

To develop a savings plan and spending plan:

• First, identify and write down your fixed expenses for each month for the next year. Fixed expenses include such things as insurance, home/ property, car payments, utilities, savings, etc.

• Once you have identified all of your fixed expenses for each month, total your monthly fixed expenses and annual fixed expenses.

• Next, identify your flexible expenses and write them down for each month over the next year. Since you are not obligated to specific expenses for these items, you have more flexibility in whether or not you want to include them and how much each of them will be.

  Consider what you've spent in previous months and any changes you wish to consider. Flexible expenses include such things as food (including dining in restaurants), clothing/ personal care, entertainment, transportation (gas), etc.

• Once you have identified all of your flexible expenses for each month which are necessary for starting your own business, total your monthly and annual flexible expenses.

• Now, subtract your total fixed expenses and total flexible expenses for each month from your expected monthly and annual income.

Is there a positive balance left? Do you have extra money each month? If you have extra money, this is a good sign for starting your own business.

You can use this savings and spending sheet to estimate how much you will need on a monthly basis. You can also use it to determine what will happen if your income or expenses change over the next year.

After examining your savings and spending requirements, you may find that you lack the necessary resources for starting your own business. Do not worry. This happens to many people. In fact, this may be the first obstacle that you will need to overcome.

If you are still determined to start your new business, you may want to begin accumulating alternative sources of income.

Seventy-five percent of small business owners use their personal savings to start their businesses. However, if you need more than you have in your savings account, other money sources may be available from bank loans, family members, partners, friends, venture capital companies, mortgage property, loans from the government, or any other source that you can think of.

A good rule of thumb is that you should not borrow more money than is necessary for starting your own business. Often, the more money you borrow, the less control you will have.

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