Everyday there are new ideas being generated. Ideas to breakthrough and build our own legacy, our own start-up which then grows into a bigger venture. Our focus is our product. We look for ways to execute our ideas so that they can be utilized by the consumers, thereby being useful to them and profitable to us. However, for all this to come together, a proper financial plan is key. Come, let’s talk about the financial considerations every aspiring start-up owner needs to have when building your legacy.
1.Research: Plant your seed and start watering it with information you get after research
What is it that you are bringing to the table? Are you bringing a product/service that fits the price band a consumer would pay and are you also bringing sufficient return to your investments? These are considerations we always struggle with in the beginning.
In order to gain customers at an initial stage, one might slash prices and become more affordable but when it comes to long-term sustainability, you need a plan that not only attracts your customers but also leads you towards being break-even and then further being profitable.
RESEARCH, strong and dedicated research can help alleviate the above dilemma. For example, we may have specialised raw materials that may not be easily available, similarly we may need to hire experts to help us out with a specific task or process. What is the trade off between our product/service being costly and being beneficial to my customer? Research will help solve this and point us in the direction we need to take.
2. List down the expenses that are actually necessary: Allocation for taxes etc
On having your own venture, there are expenses that you have to incur and are mandatory. These include company registration fees, trademark, and taxes applicable along with investments on the resources being used for the development of our product/service. A general rule of thumb is to set aside 40% of sales/revenue/income to pay fixed expenses each year.
It is highly advisable to allocate and separate the expenses that are essential and mandatory alongside the expenses that are not very urgent and can wait. This not only helps us in planning and budgeting but also helps you strategize your future financial moves.
3. Setting up the source of funding: Loan/bootstrap
You may be someone who always wanted to have your own venture and jumped into the execution after completing your education. Or you may be someone who worked at a firm for a brief period of time and decided to build your own path. What really matters is the source of the funds from which you are operating. Either bootstrap (your own funds/savings) or a loan from the bank or even a combination of both, think about how you would fund your business in the short, medium and long term. This is an important point to be considered when it comes to allocation of funds.
4. Protection of personal and business asset:
When it comes to protection of any asset (living and non-living), we are always looking at insurance. Protection of your personal assets which is beneficial for you, your family and your company includes personal insurance coverage, retirement planning and individual tax expenses while talking about business assets, we include trademarks, insurance that cover product liability, errors and omissions etc. This of course, depends on the industry of your venture.
5. Development of your business pitch
You must be thinking how is a business pitch related to finances? At the start of your venture, a business pitch must be penned down covering what your business is about, its benefits to your consumers, what sets your business apart and even the problems you are currently facing or feel you may face in the future. This business pitch helps investors understand your business, may bring you partnership opportunities and also generates business development opportunities on both B2B and B2C level. The key to such opportunities is to actively be a part of networking and investment communities that generate leads to help your business grow.
P.S. Keep a section of your pitch empty where you can add your growth story every time you need to present it!
6. Forecasting: Setting the market price in a way that you know when to increase the cost of your product/service
Yes you read that right. At the initial stage, you set the price keeping in mind the consumer, the expenses behind making and delivering the product/service to the consumer and even your competitors. But as you grow further in your journey, it becomes necessary to bring in better and more valuable resources to serve your consumers. It is ideal to keep your forecast realistic so that you don’t go back to the break-even point but instead expand smoothly and most importantly start paying yourself too.
7. Flexibility to deal with unforeseen expenses
It is human nature to allocate the revenues towards the foreseen expenses, clear them and put the rest into your savings account. Yes we did mention that you need to pay yourself — however, it is ideal to allocate certain parts towards unforeseen expenses such as an increase in the cost of goods/raw materials, repair and damages, a sudden need to hire more employees etc. The idea is to be well prepared without having a single breath of stress.
We hope you found this article useful. We would love to hear your thoughts and your personal stories — Please do drop a line at info@thefinancebox.in or check our our website www.thefinancebox.in