The Shocking Truth About How To Start An Internet Business - Part 3Creating a Realistic Budget
Your first three years of business are critical to your success - or failure. Not only do start-up businesses have heavy one-time, up-front expenses, but they're also tight on cash and funding. So your first task is to create a realistic budget. This acts as your blueprint for success.
Your preliminary budget outlines expected and conservative income figures. Start with broad expense categories like utilities and income, breaking these out into more detailed line items like Utilities: telephone, Utilities: gas, Income: paperbacks, Income: hardbacks, and so forth. Expenses are typically easier to project than income. But income grows more and more predictable as time goes by. For this reason, review and adjust your budget quarterly and annually based on new data. (We'll talk more about this in the final installment of this series).
Differentiate your one-time expenses (business license, legal fees, signage, sales literature, and so forth) from your ongoing expenses (leasing, utilities and insurance). Project figures out a full three years with growth dependent on market research or educated estimation. Add an extra 25 percent to all expenses to cover unforeseen or emergency events.
Survive on as little capital investment as possible during your first few years to ensure survival until you reach profitability. Buy and budget only those items necessary to generate revenue. Organize your budget into fixed and variable expenses. Your fixed costs are those which remain stagnant from month to month, including your building lease, utilities, advertising and insurance, while your variable expenses are typically dependent on sales, like commissions, inventory and shipping.
Avoid optional or unnecessary purchases. Nearly every penny you save goes into your pocket. So don't give in to temptation by spending $1,000 on a new desk. Buy only what's necessary to generate revenue and allocate money toward items receiving the strongest ROI. You can always upgrade down the road once your businesses is better established and income is more predictable. The leaner your organization, the better.
Every business needs start-up capital. These funds help you purchase furniture and fixtures, computers and inventory while still bringing in a livable wage during the first few years when most companies see more red than black. But how much you need and where this funding comes from differs from business to business.
According to a Biz$hop article for Wachovia, the country's fourth largest bank and diversified financial services company, more than 17 percent of start-ups launch with less than $5,000 cash. So before you develop a funding acquisition plan, calculate how much money your business can realistically generate to finance its own expenses. Then define exactly how much money you need to cover necessities, expansion or possible risks.
Start-ups have several options for acquiring funding - from mom and dad to venture capital partners. Begin with your own resources including savings accounts or home equity. Next, tap into your family and friends. Next, research venture capital firms. These are companies that finance start-up ventures who have limited access to capital markets but need quick growth. Angel investors are another source of business financing. Angel investors are successful entrepreneurs that have money to invest in other companies. Newspaper ads and person-to-person networking is the best way to find angel funding sources. The Small Business Administration (SBA) also licenses Minority Enterprise Small Business Investment companies (MSBIs) and Small Business Investment Companies (SBICs) to help fund critical growth stages.
Many small businesses have survived the first few years using credit cards and personal loans. Working or investment partners can bring in funding or services that can save your company money. For instance, if you partner with an attorney or a designer, you save a great deal on legal or design fees. When you need stronger financing, you'll need to discuss these goals with a commercial bank, savings and loan or finance company. You may qualify for a small business or SBA loan or line of credit. But make sure you have sufficient collateral to guarantee funding in the event of default. Borrowers want to make sure they give credit to start-ups that have as much confidence in their own success as the bank would be offering in loans.
(Author's Note - If you have missed any article in this five-part series, you can find the missing articles here: www.thephantomwriters.com/recent/author/clinton-douglas-iv.html)
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