Starting Your New Venture

Say that you are the type who can operate a business of your own. You have given attention to the overall chances for success, and have chosen the business you wish to establish. What practical problems will you face in starting the business? How much money will you need? Where can you obtain it? What form of business organization will you have? Where should you locate the business?

Cash Planning

The first question you want to answer is: How much money will I need? But this question can't be answered until several other questions are answered and several decisions are made.

To decide how much money is needed to start a business, enter all of your potential income and all of your planned expenses on a work sheet or form.

Even though you may feel that this kind of planning is more than you need to start a simple small business it is useful to get started with this approach to management which puts figures down in black and white. You will find the same approach valuable in an established business.

First, estimate your sales volume. This will depend on the total amount of business in the area, the number and ability of competitors now sharing that business, and your own capability to compete for the consumer's dollar. Obtain assistance in making your sales estimate from wholesalers, trade associations, your banker, and other business-people. Several business and statistical publications may be useful in making sales volume estimates.

In reaching your final estimate of sales do not be over-enthusiastic. A new business generally grows slowly at the start. If you overestimate sales you are likely to invest too much in equipment and initial inventory, and commit yourself to heavier operating expenses than your actual sales volume will justify. Since you are just starting up you might have no sales for the first few months. At any rate you can expect your first few months to be very low.

You must also determine what proportion of your sales will be cash and what proportion will be sold on credit. If you estimate that a certain portion of the sales will be on credit then you must figure when you are going to get the money for these sales. One month? Two months? More? Never?

Next, estimate how much cash will be paid out. Remember that in starting a business you may be purchasing equipment, paying fees and licenses, making deposits on lease, utilities and so on, several months before you open the door. Some of these expenses are easy to estimate. If you have decided to lease a building (more about that later) then you know what your deposits will be and how much you will have to pay out each month. You can probably get the cost of fees, licenses and utility deposits with a few telephone calls.

Other expense figures may take a little more work to get. One way is to obtain typical operating ratios for the kind of business in which you are interested. Among the sources for such ratios are Dun & Bradstreet, Inc., trade associations, publishers of trade magazines, specialized accounting firms, industrial companies, and colleges and universities. The typical ratios for your type of business multiplied by your estimated sales volume will serve as bench marks for estimating the various items of expense. However, do not rely exclusively on this method for estimating each expense item. Verify and modify these estimates through investigation and quotations in the particular market area where you plan to operate.

Don't forget to pay yourself too. You may need money to live on if you have to quit your job. If your spouse is working and can support the family for a while you may not have to withdraw money from the business. The longer you can go without taking money out, the quicker you will build up a strong cash position. Now that you have estimated your cash receipts and expenses, write down the amount of cash you will put into the business to start. This goes on line 1 in the example below. Next, add lines 1 and 2 for the first month to get line 3. Then add up all of the expenses to get line 5. Subtract line 5 from line 3 to get line 6. This cash at the end of month 1 then goes to line 1 for the beginning of the next month, and so on.

If you continue this for the entire year, very soon you will find you have negative numbers or a negative cash flow. About this time you will also realize that you should be working on this form with a pencil that has a good eraser.

Say that you're the type who's beginning new small business. You Have given attention to the overall chances for success, and have
selected the new company you want to establish.

What technical problems will you face in starting the business? How Much money will you need for beginning new small business?
Where can you obtain it? What kind of business organization will you have? Where should you find the business? (start business
tips to follow along )

The very first question you need to reply is: Just how much money will I need? However, this question can not be answered until
several other questions are answered and several choices are made.

To Determine how much cash is Required to start a company, enter all Of your prospective income and all of your planned expenses
on a job sheet or kind.

Though you may feel that this kind of planning is more than You have to initiate a simple small business it's beneficial to begin
with this particular approach to management which puts figures down in black and white. You'll discover the same approach valuable
within an established business.

First, estimate your sales quantity. This will depend on the total Quantity of business in the area, the number and skill of
competitors now sharing that business, and your capability to compete for the customer's dollar. Obtain assistance in producing
your sales estimate from wholesalers, trade associations, your banker, along with other business-people. A number of company and
statistical books could be useful in making sales volume quotes.

In reaching your final quote of sales don't be over-enthusiastic. A brand new company generally develops slowly at the start.
Should you overestimate sales you are most likely to spend too much in gear and first stock, and commit yourself to thicker
operating expenses than your actual sales volume will warrant. As you're just starting up you may have no sales for the first
couple of months. At any rate you may expect your first few weeks to be quite low.

You must also decide what proportion of your sales will be cash And what proportion will be offered on credit. If you estimate
that a particular portion of the earnings are going to be on charge then you have to figure whenever you're likely to have the
money for these sales. One month? 2 months? More? Never?

In our guide to beginning new small business, estimate how Much money will be paid out. Bear in mind in starting a business you
might be purchasing gear, paying fees and licenses, which makes deposits on lease, utilities and so forth, several months until
you open the door. A few of those expenses are simple to estimate. In case you've decided to lease a building (more about this
later) then you know what your deposits will be and how much you'll have to pay out each month. You can probably get the expense
of fees, permits and utility deposits with a couple of telephone calls.

Other expense figures may take a little more work to get. One way Is to acquire typical operating ratios for the kind of company
in which you're interested. One of the resources for such ratios include Dun & Bradstreet, Inc., trade associations, publishers of
trade magazines, technical accounting firms, industrial companies, and schools and universities. The typical ratios for your type
of business multiplied by your estimated sales volume will serve as bench marks for estimating the various items of expense.
However, do not rely exclusively on this method for estimating each expense item. Verify and modify these quotes through
evaluation and quotations in the particular market area in which you plan to operate.

Do not forget to pay yourself too. You may need money to live on if You have to quit your job. If your partner is working and may
encourage the family for some time you might not have to withdraw cash from the business. The longer you can go without taking
cash from, the quicker you will develop a strong cash position. Now that you have estimated your money receipts and expenses,
write down the amount of cash you will put in the company to start. This goes on line 1 in the example below. Then add lines 2 and
1 for your first month to get line 3. Then add up all the expenses to find line 5. Subtract line 5 from line 3 to find line 6.
This money in the end of month then goes to line 1 to the beginning of the next month, etc.

Should you continue this for the Whole year, very shortly you'll find You've got negative amounts or even a negative cash flow.
About this time you will also understand that you ought to be operating on this kind with a pencil which has a fantastic eraser.

In this overly-simplified case, you notice that by the end of June you are minus $200 in money. Two solutions can be attempted -
reduce your buys in June by $200 or start with $200 more. You may be unable to reduce costs (they will likely go up as your
business starts). So you'll need to put in $200 more to start with. If all you have is $4000 then the extra $200 you need is
funding you need to get from someplace else.

Don't be fooled by this very simple illustration. Many small businesses Begin with the $200, and try to acquire the $4000 from
somewhere else. Since a Major reason for failure in the early phases of a company is Under-capitalization, be very careful in your
preparation at this stage. You can Almost always aim on some unexpected expenses and a few delays in expected income.

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