This blog post has been provided by Christopher Piekarz, Marketing and Administrative Intern, Summer, 2018
You’ve recently come up with a great new business idea and you’ve finally decided you want to pursue it. However, you have minimal or no business experience. Don’t worry, it doesn’t take a business expert to run a successful startup or small business – just a well-thought-out plan and lots of determination. Below are a few financial tips to help your new business get off to a solid start.
The Business Model
The first step when planning a successful business is to create a business model. This will include a projection of your costs, revenue sources, target markets, and financing. Where are you making your money? What demographics does your product or service attract? How much money is spent on the production? What are your fixed and variable costs?
These are just a few questions that you, as a business owner, need to think about. The business model is not meant to provide accurate projections of how much money you’ll make or spend, but rather a useful tool to help your company form a strong, structural foundation. It represents the framework for how your business operates and gauges your company’s short and long-term performance.
Every business needs some initial capital to get off the ground. Some owners may have enough cash lying around to start, but others must seek funding from outside sources, be it family or friends, banks, or venture capitalists. While obtaining more money for your business operations can be extremely useful to spark growth, if done negligently, it could ruin your business. There are two major rules when borrowing money:
- Don’t borrow more than you need.
Let’s say you need to buy a piece of machinery worth $50,000 to maximize your production speed, but you don’t have enough capital to pay for it, so you decide to take out a loan from a local bank. Always have a plan for what the borrowed money will be used for and how you will pay it back. Never borrow money without a purpose, or with the mindset that it will be needed eventually. If you do, the added capital will be going underutilized for a period of time and will be counterproductive in helping your business grow. Make sure to consider how much money you need, where it will be applied, and how you will pay it back when taking out a loan. Otherwise, your business will take on the unnecessary burden of more debt.
- Pay back the borrowed money as soon as you can.
Over time, borrowed money accumulates interest, meaning that over a pre-determined period, the balance of your loan will be multiplied by an interest rate. When you finalize the loan, you are notified of the frequency interest, whether applied monthly or daily. The longer you wait to fully pay back a loan, the more money you will have to pay the bank. When borrowing, make sure to be diligent in putting it to good use and repaying it promptly, or you could end up paying double or even triple the initial loan balance with interest payments.
Goal setting is critical to the growth of your business by outlining objectives the company can strive for. However, if goals are set incorrectly, they provide little value to your business operations.
Here are a few criteria for new business owners when setting goals:
- Make sure your goals are specific.
One of your goals may be to “expand business into new regions.” What part of your business do you want to expand? Where specifically do you want to expand? Are you looking to expand the distribution of products or set up another storefront in a different region? When do you want this completed? A vague goal such as this, does little to help your business as you – and your employees – have little insight as to what you are striving to achieve. Speaking of achieve…
- Make sure your goals are achievable.
You want your goals to be challenging as they push your business to a new level. However, they cannot be unobtainable. Why set a goal if you know it will be impossible to achieve? Period after period will be filled with constant disappointment, while employee morale will decline if the company’s expected goals are never met.
- Make sure they can be measured.
What is the point of setting a goal if you can’t be sure if it was achieved or not? It’s pointless. To avoid this, you want to use measurable attributes of your business, such as time, percentage point increases and decreases, quantity of land you own, etc. For example, one measurable goal might be: “annual sales growth of 5%, 6.5%, and 8% respectively over the next three years.” The company and its employees will then compare their performance to the specified goal. From there, management can decide which actions and adjustments need to be made in order to remain on target.
If you have any questions or you’re seeking advice, please feel free to contact us at 845-986-1177. We are your business, home, auto, and life insurance solutions provider, partner, and adviser, serving Warwick, Greenwood Lake, Florida, Goshen, Pine Island, Middletown, Chester, Monroe, Newburgh, Orange County, and the Hudson Valley and Tri-State Area.