Plan Your Personal Finances

Plan Your Finances

Estimate Start-up Costs and Time

It is important to put together a business plan for your idea. And one of the first steps would be to Estimate Start-up Costs. Estimating your start-up costs will require you to continuously review and alter the assumptions you have made in your business plan.

Your costs will depend on the business you choose to pursue. Some business can be started with a small budget, with little or no inventory whereas other businesses require considerable capital investment and inventory.

Your Start-up expenses would include initial legal and statutory expenses, one-time costs such as the cost of registering your business, cost of opening a bank account, registering a domain name, building a website for your business etc. You need to think of on-going expenses as well. Expenses such as rent, office equipment, supplies and utilities are examples of on-going expenses.  It is important to pay attention to costs in order to ensure business viability. Today it is possible to establish a business address and utilise shared Office facilities in many cities. This can help you minimise initial set up costs - till your business picks up.

You will also need to think about how long it will take your business to start getting customers and hence making money.  Before you start getting customers, your business will mostly be facing cash outflows and these will form part of your start-up costs. Therefore, it is very important that you judge your start up time correctly, otherwise your financial calculations will go haywire.

Do not Ignore Personal and Household Needs

You must pay attention to your personal and house hold finances. You must generate  and keep aside sufficient Cash Reserves in advance to take care of your family expenses while your business is being established.

 A sound financial plan is detailed as well as conservative.

Loan Requirements- Margin Money & Collateral

In addition, you must plan for the margin money, collaterals and your contribution to the capital investment in your business. Most banks will ask for some form of collateral when you approach them for a loan. Think about what your bank will need as a guarantee or what you may need to mortgage.

Be Conservative When Estimating Cash Flows and Costs

When you start a new business, the cash flows will not be immediate. There is a certain start-up time following which cash starts flowing in. However, it is important that you do not over estimate these cash inflows. There can be unforeseen circumstances which may limit your cash inflows, which in turn can have an adverse impact on your business.

Similarly, when estimating costs, you need to be as conservative as possible. You do not want your new business to be burdened with a lot of costs as soon as it starts. Low initial costs can help you sustain better. Potential investors may be discouraged if your initial cost projections are too high.

Account for Unexpected Needs

You should try to make provisions for unexpected needs or expenses that may occur. If it is not possible - you should at least have a contingency plan in case anything unexpected does occur.

Think About Insurance

Insurance plays an important part in the financial planning process.

Insure your business against Risks and provide essential insurance to yourself as well as your employees.