How much do you need to invest in your business to get it off the ground?
Whether you’re digging into your savings, remortgaging your house, or approaching the bank for a business loan, it’s vital that you don’t underestimate the money you’ll need to get your business up and running.
Here’s a simple process I recommend so you can work out how much you’ll need to launch.
- Start by estimating your company’s income, month-by-month, for the next year. Make your projections as conservative as possible.
- Next, list all your expenses. Include all the one-off fees you’ll have to pay to start your business – including legal costs, accounting costs, product development, etc. Then add your basic monthly expenses, including office rent, telephone costs, and so on.
- Finally, take your income and subtract your expenses. Chances are, you’ll hit a negative figure. This is the amount you’ll need to invest to start your business.
If you’re at all uncertain about your estimates (most entrepreneurs overestimate income and underestimate expenses), update your financial model until you’re happy with your projections.
Done? Now here’s my secret sauce that will keep you on track.
Look at your revenue projections, and cut them in half. Then cut them in half again. And halve them once more for good measure.
Now, take your expense estimates, and double them.
Your new figures may be a bitter pill to swallow. But they’ll give you a more realistic idea of what’s likely to happen in your business.
Remember, you can always underspend. But overspending risks breaking your business (and your personal bank account)..
A year down the road, you’ll be happy you made your projections using this method.