| 19 January 2010
The first thing you want to do is define your needs. How much money will it take for you to get your business off the ground is one question you want to ask yourself. You may find that the money you already have is a good start or you may find that resources are going to cost much more than anticipated.
When starting your business, it is best to have a financial plan for the first three or four months, but I advise having a plan for the first six. Regardless of the time span, your plan should only be tailored around what is essential to keeping your business afloat in the early going. This is also where you want to establish your one-time costs versus your ongoing costs.
A one-time cost would be placing an ad in the paper for example, while an ongoing cost would be utilities and pay for your employees. By determining your needs, you can determine your costs. Next you want to monitor your debt-to-equity ratio.
Your debt-to-equity ratio is how much money you have borrowed compared to how much money you have put into your business. If you have borrowed more money than you invested, it may be time to sit down with a financial advisor. You also need to monitor your financial statements.
Your financial statements should not be underutilized. Apart from being used for taxes and loan applications, your financial statements provide a road map to tailor your business needs and potential challenges. As part of your financial statement, you’ll have a Balance Sheet and an Income Sheet. Your Balance sheet gives you a picture of your company at a certain time of year and provides financial information (costs, gains, etcetera) for that particular period. If you sell winter coats for example, a typical Balance Sheet will show you that sales are significantly lower in the warmer months. You can always use your Balance Sheet to address any challenges and predict your company’s standing over the next season or two.
Your Income Sheet, while usually not as comprehensive as your Balance Sheet, shows how much money your business will take in after the costs are taken care of. For example, if you spend 30K on the latest high-tech equipment only to later take in 15K, your Income Sheet will show you this in advance. If your situation is similar to that outlined above, you may need to find a more efficient way to manage your money. Numbers speak volumes about your business and they talk a lot more often than one might expect. Also, one of the most important things to remember tends to be the most basic.
Pay your taxes. I cannot stress enough how important this is. Granted getting your business started is difficult and it may be a little frustrating. It is important to remember that even if no one else gets paid, you pay the IRS. There is nothing more dangerous to your business than leaving that situation unattended. Once a year, you should sit down with or call a representative of the IRS just to monitor your status and to make sure you pay what you owe.
