The last few days we have been talking about how an individual can go about using a budget to bring some sanity into their financial life. There is another group of individuals who will want to use the same technique in their businesses, and frankly speaking we all know what happens to 90% of the businesses in the first five years in operation? A budget is a fundamental tool to any person who wants their business to be among the remaining 10%, as you will have considered all the necessary expenditure that you will need to start-up your company or business, and probably be in a position to incur losses in the first few years of operation as the business tries to penetrate the market. These are some of the few point you will have to take into consideration when budgeting for your business, Jeff Nelson also points out other areas that are worth taking into account when budgeting your money in starting a new business.
Many people have dreams of eventually starting up their own company one day. The idea of being your own boss for a job of your dreams is one of the reasons why many people decide to follow this path, but what may start out as a dream may turn up being a financial disaster if you don’t budget your money. With every story of success, there are five stories of financial disaster of businesses that didn’t work out. Many of the financial hardships that people experience while starting up their own company can be avoided by using a simple budget when planning on money you will need to spend.
One of the most important things to do before starting your own business is to research the market you are interested in getting into. The failure of most new businesses can most commonly be contributed to the owner not doing enough research about the market they are going to enter. You need to carefully analyze the market you are trying to enter and figure out who are the main businesses’ in it and how you will compare. You must use realistic standards when doing this; you can’t expect as a new business owner that you are going to make a profit during your first year. With that you have to take into effect that in reality you may not make a profit your first year, and for most new company’s backup funds are essential to continuing the new business. You also have to ask yourself what you want to get out of your new business, in order to do this you not only have to make short-term goals but also long-term goals. Making a budget for short-term and long-term goals will allow you to see your future spending in a big picture.
Besides having backup funds you have to have enough money to get your new business rolling. Many people underestimate the amount of money a new business needs, they do this by overlooking costs they may need. For example, if you are purchasing items for a retail store you may forget that you need clothes hangers to hang the clothes in the store. Many people focus their budget on immediate needs such as inventory and forget the smaller things that may become costly. It is imperative that new business owners have money stored somewhere as a backup for unexpected costs. New business owners are also known to spend money on things that are unnecessary. Of course you want your new business area to be gorgeous, with new desks for employees and a new building, but you have to ask yourself if it is really necessary. Is it absolutely necessary that I am in a new building with new things? If it isn’t you may want to look into different areas to start-up, sometimes the best place to start-up a new company is in your very own home.