Every potential entrepreneur should know certain financial basics when starting, growing or expanding a business. I highly recommend consulting licensed professionals for financial and legal advice. There are, however, a few fundamentals that you should be aware of.

1. How am I going to finance my business and keep it afloat until it begins generating revenue?
2. Will I seek outside financing or am I going to use my own money?

Estimating Business Start-up Costs

It’s exciting to dream of starting and growing your own business and being your own boss. However, when it comes time to take your business from the dream to reality, there are a few financial basics that need to be addressed. It is vitally important that you know how much money it will take to keep your business growing. What are the figures in actual dollars and cents?

According to the U.S. Small Business Administration (SBA), to estimate start-up costs you must calculate how much it will cost to run your business for several months while it is not yet producing income. Of course, making an educated estimate varies from business to business.

Here are some of the items to consider when estimating start-up costs:

• Incorporation fees
• Licenses
• Price of fixtures, signs
• Initial inventory and stock
• Advertising
• Membership fees for local business organizations

Here are several typical ongoing costs:

• Rent
• Utilities
• Inventory
• Insurance
• Taxes
• Employees
• Supplies
• Marketing

When trying to estimate the month-to-month costs of running your business, the SBA recommends dividing your costs into two categories: Variable and Fixed. Examples of variable are inventory, employee commissions and advertising costs. Example of fixed are rent, insurance and professional costs.

Understanding The Financial Needs of Your Business

Whether you choose outside financing or plan on using your own savings, there are certain questions to ask yourself about your business, its ability to generate income and your ability to manage money.

1. Do you plan to manage your own finances or seek the advice and counsel of a professional CPA, tax attorney or financial advisor?
2. How much capital a month will it take to sustain your business?
3. Do you need more capital than you now have to start or sustain your business?
4. Do you have a written business plan that you could show a prospective lender?
5. Is your business in the beginning stages or in a transitional stage?
6. Is your business seasonal?
7. How strong is your management structure?

These are just some of the questions that potential lenders will be asking you as they assess your loan worthiness. The more you understand the inner workings of your business, the better able you’ll be to explain the business plan to others. A clear professional vision of the future is a vital element of business success.

Should You Use Personal Finances to Fund Your Business?

This question can create tension among family members. The SBA estimates it can take six months or more before a new business generates enough income to support the owner. Six months is a long time without steady income.

When determining if it wise to use personal finances to bankroll your business, ask yourself these questions:

1. Am I placing my family at financial risk?
2. Do we have enough reserves to sustain the family budget and a new business for at least six months?
3. Is my family agreeable to my financing a business with personal funds?
4. If I do have to seek outside financing, is my personal credit history stable enough to support a business loan?
5. Am I willing to risk losing my investment money?

Two Types of Financing Available for Your Business

If you should decide that outside financing is best for starting or growing your business, there are two types of financing available: Equity Financing and Debt Financing. Here are brief definitions of both:

Equity Financing is money raised by selling shares in your company. Selling shares of your company means selling degrees of ownership in your company. Basically, you are acquiring money for your business without acquiring debt.

Debt Financing means actually borrowing money to build your business. That money must be repaid over a stipulated period of time. Loans are generally available from banks, commercial financial institutions and through SBA-guaranteed loans.

The SBA loan program is geared toward small businesses and may be an excellent place to begin. The SBA doesn’t actually make loans, but it does guarantee the loans. You may also want to check to see if there are any government grants available for your type of business.

This should give you a general overview of what to consider when financing a new or growing business. My advice: Consult a financial and/or legal professional for all the latest financial information relevant to your particular business needs. This article is for information purposes only and is not intended to substitute for professional financial or legal advice.

About the Author

Sharon Michaels is a business coach and the author of How to Give Yourself the Power to Succeed(EmPOWERing Publications, 1996). She produces and hosts the weekly radio show, Women Enjoying Success, interviewing and sharing the strategies of self-made successful women. Learn more at: http://www.blogtalkradio.com/sharon-michaels . Read Sharon’s blog,  http://www.sharonmichaels.com/powertosucceed/, check out her weekly Ezine, Unlimited Success for Women and visit her website at http://www.sharonmichaels.com

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