Setting up your start-up can be exciting. For many, it’s based on an idea that’s been in the pipeline for a while and has been the subject of many dinnertime conversations and daydreams. Your idea could be a flying success, but it needs a solid financial foundation first.
Assess your personal finances
Before you launch your business, sit down and evaluate your personal financial situation. Find out what your credit score is and if it has the potential to improve, take active steps to make it fly. List out your personal expenses, debts, savings and any other financial commitments. This will help you determine whether you’re in a good place to channel your full focus into a new business.
If you’ve decided to go ahead and launch, great! Make sure your funds are sufficient to keep you afloat for at least the first few months. Err on the side of underestimating the expected profits and overestimating your expenses until you have some concrete historical data.
Establish a budget
Draw up a careful budget and stick to it. When you’re running a business, the income you receive may be quite variable, especially while the start-up is in its infancy. Budget for your private expenses and your business-related ones too, keeping them visibly separate so that there won’t be any confusion.
When your monthly income fluctuates, a good tactic is to budget for your lowest potential monthly earnings. This helps ensure that all the important outgoings are always accounted for.
Once the business has been running for a year, you have a strong amount of past data to rely on. You can review your monthly budget and divide it by 12 to calculate your monthly average income and outgoings. Of course, if the nature of your business is seasonal (for example, you sell woollen winter goods or desk fans), this approach may be too simplistic and a more granular approach may be appropriate.
Understand tax obligations
Check the latest tax regulations that apply to businesses. If you operate as a sole trader or a partnership, you’ll only have to pay income tax. But if you’re a company, you’ll need to pay corporation tax. The rate you pay currently depends on which threshold your annual profits reach.
Save for emergencies in a separate fund
In the early days especially, unexpected expenses often present themselves. This can be disorientating if your business hasn’t yet built up the profits it needs as a buffer. For this reason, an emergency fund is fundamental.
Should you suddenly need to travel a long distance or book a flight to see a client you just can’t afford to turn down, or less excitingly, face the breakage of a laptop, you may need to find some resources to fund it. It’s much better to dig into your emergency fund than personal savings!
Check what insurance you need
Getting the relevant insurance for your business is another way to ensure it can survive, even when life gives it lemons. For example, consider public liability insurance, a policy that can cover you if a member of the public claims against you for an accident. Similarly, for a lawn care business, having liability insurance for a lawn care business is crucial to protect against any potential claims or damages arising from accidents or incidents that may occur during service provision.
If you have a building that you specifically use for your business, another one to look at is commercial property insurance. If you just need to protect certain items that your business uses, a business contents insurance policy might be more appropriate.
Good forecasting is one of the foundational elements of building a business. When better to start than now?