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How Much Money Will I Need For My First Year Of Business?

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It’s quite difficult to determine how much money you’ll need in the first year of your business without knowing a little about the model you plan to use for your company. For example, you might be running an online company from home. Obviously, you’re going to need less money for this compared with a business operating from an office property that is bought or rented out.

We can also look at the official average estimates to help answer this question. According to research, most online business owners can set up their company between two and three thousand dollars. However, the average first-year startup cost is a staggering thirty thousand dollars. This is particularly worrying when you take into account how many businesses fail before they even make it through their first year. For this reason, business owners would be advised to keep first-year costs as low as possible and minimize financial losses. So, now we have the rough estimate to work with, and that’s thirty thousand, but we can get a far more specific number than this with a little research.

To do this, you need to consider the costs of your company, your project profit level and the level of revenue you hope to claim by the end of year one.

Measuring Expenses

You’ll find that there are a number of expenses to contend with even at the beginning of opening a company on the market. Let’s look at the issue of finding staff as a small yet crucial example. To get the right staff for your company, you might need to market it online to attract them. This might require hiring a marketing agency or a recruitment team. On top of this, you may want to check you’re hiring the right individuals and that could mean using an HR resource. Once you have decided on the hires for your business, you could need to invest more money into training them, and as we said, that’s just one example.

Other expenses might include hiring necessary skilled professional services for your business such as a legal advisor. They don’t come cheap, and these are some of the costs you’ll need to add together to find the magical number for expenses in the first year of operations.

The good news is that almost all of these expenses are tax deductible. That means you can cut down your costs quite a lot as long as you do move forward with opening the company. To find out how to deduct these costs without raising questions from the government, contact an accountant. Also check out this post-> Ideas For Keeping Business Costs Down

Cost Of Capital

Capital expenditures are the one time costs that your business will need such as the purchase of property, stock and perhaps a business fleet. When looking at these costs, make sure you look at a number of different options and suppliers to find the one that offers the best value for money.
What Can You Spend?

You’ll be lucky if you manage to cover the costs mentioned above without some sort of loan. But you should begin by examining your personal finances. Most new business owners use their savings to start their business and run out of money quite quickly. Even if you have thirty thousand dollars in savings, you have to remember this is the average. It depends on the type of business that you want to run. For instance, you might be running a logistics company, and if that’s the case, you’ll need vehicles worth hundreds of thousands of dollars.

You can use your personal finances to cover the costs of your startup until the point where it reaches a level of profitability.

Once you have a collection of your expenses and an estimate of how much you have to spend in personal assets you can start making calculations. Even rough averages are helpful here, and the best advice is to overestimate. That way you’ll always have a little more than you actually need.

Anything that you can’t cover through personal finances you will need to borrow. To calculate how much you’ll need to spend you can use the tool provided on businessnewsdaily.com. Here you will be able to choose the type of loan needed, selecting from a number of different options specific to your business. It will guide you through all the options and eventually provide you with the number that you’ll need to borrow, plus interest. It’s not the only tool like this online, and there are many more to choose from to get an accurate estimate.

Of course, there are other factors that will help you determine how much you’ll need in the first year.

Real Time Changes

Once you have the final estimate of how much money you need, you shouldn’t consider it a fixed amount. Obviously, you’ll want to try and stay as close as possible to the budget or perhaps cut it down a little. But changes do occur, and that’s why you should constantly reassess that number, adding new estimate charges to the equation. There may have been expenses that you missed off your original list. Or perhaps you have found a way to approach a particular issue for a lower cost. For instance, maybe you have found a cheaper digital solution for an area of your business such as file management. Immediately, you would be able to narrow down the overall first fixed costs for your company.

Check Business Metrics

You need to examine business metrics as well. Let’s say you are going to be selling products in your company. Determining the price of products will help you ascertain how much you will be making in revenue through your first year. Ideally, you want to make sure that your revenue stream is large enough to cover most of the expenses for your business. This will help you ensure that your business model is stable enough to survive the first year.

Looking at areas like this, you should be able to formulate a budget for your first year open on the market. As well as that, you can use this information to ensure you are keeping spending in check and minimizing the potential risk for your company.

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Finance

Financing A Business With A Home Equity Loan

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Finding funds for a business is no easy task. Qualifying for a business loan is not guaranteed; therefore many companies leverage their owners’ assets like the family home to raise the funds they require in their enterprise.

There are many ways to use personally guaranteed funds too and one option is what’s called a home equity loan or home equity line of credit, These loans can also be ideal for debt consolidation of say high-interest borrowing like credit cards, personal and short term loans but in this blog post we’re focusing on how these loans work for businesses.

There are many more obstacles or hoops to jump through when seeking an actual business loan and often it’s the financial statements of the business that fail to pass the lending criteria due to the startup phase requiring more investment and not showing a profit.

Entrepreneurs starting out, are therefore renown for sourcing investment from wherever they can get it. The credit card has been the go-to source for funds, but the interest rates are very high, so it’s not a long term borrowing solution for a business.

Before long, the owner is seeking other sources to keep the business afloat or to grow it. They may take out personal loans but before long their requirements exceed what they borrow without additional security so this is where many use their home.

As a business owner, it may make perfect sense to use a home equity line of credit to draw down funds for the business and then repay them when in lump sums and repeat as and when required. So what is a HELOC?

HELOC

This type of loan allows you to have an open line of credit on the equity you have in your property.

HELOC’s has longer repayment periods that can be 10 – 20 years much like a usual mortgage and as the property owner you can borrow up to 85% of the home’s value minus what you may owe it. For example, if your home is valued at $750,000 and you have a mortgage of $250,000 on it already. Your line of credit may be as much as $425,000.

HELOC rates are higher than your standard mortgage rate, so it’s very much ‘caveat emptor’ or buyer beware, get professional expert advice from your accountant, financial advisor and maybe also your lawyer. Remember all loan agreements are legal documents, and they have terms and conditions that the borrower must comply.

There are many other ways to fund your business, including angel investors, offering shareholdings, so while using the equity in your home is an option it may not be the best way forward as the risk is your business cannot pay back what it’s borrowed, and you are personally liable to repay it or lose it.

Remember it is your equity and if your business borrows too much of it and can not repay it, and the lender calls in the loan it could be that you are forced to sell your home. It’s a dreary thought, but it’s better to know the pros and cons when borrowing money for any venture.

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Finance

Young Money: How To Fund A Startup

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Have you got a great idea for a business and now you want to make it happen? You’re not alone. While every business with the idea, commercialising it is a whole new site of skills. Getting a startup business up and running is a challenge for anyone who has not done it before.

Entrepreneurs don’t usually have the ideas, i.e. they’re not the creative talent. They’re the people, the ideas creators turn to, when they want to see how far they can take the idea and turn it into a viable business.

The start up phase of any business involves a lot of working hard, but not exclusively, it also requires investment. Seed money can come from various sources. Without the money, to get started and provide ongoing investment as the business shows promise, your venture may take too long to mature and a competitor takes your place in the eye of the consumer. So where can the investment come from?

What’s Available?

There are a lot of different funding options available for small businesses, and they all offer their benefits. You can find some examples of the most popular methods below, along with some additional information to help you choose which route might be best for you.

Personal Finance/Loans

You will need to invest in yourself, i.e. put some of your own money in. If you have not got savings, consider other options, like your home loan. This is a hugely popular option for start ups that fail to get funding from other sources. Caveat Emptor: Always seek professional advice from your accountant, lawyer etc before taking on debt.

So if you have money saved up or can get a loan from a bank, funding your business will be a fast process. As aforementioned, there will be a personal risk here, but you won’t have to prove to anyone that your business will work, making it great for those who can’t get further than a concept without some capital.

Business Loans

Some banks and governments will offer loans to new businesses. In most cases, you will have to have existing cash flow to make this work, limiting the successful startups will have with it.

Angel Investors

If you can convince an investor with the money to back your idea, you won’t have to look at other types of funding for business, as you will have both money and support. This isn’t always easy to find, and you will have to prove that your idea is worth their time, making it hard for those with nothing but a concept.

Personal Risk vs. Sacrificing Freedom

The choice you make when you’re choosing how your company will be funded largely rests on what is more important to you.

If you are willing to take on personal risk, using your own money can be a great way to go, as it will give you all the freedom you need to build the business you’ve been dreaming about.

For those who would rather keep their money safe, making a couple of compromises along the way can be a small price to pay for an investor or venture capital. This is a very personal decision to make.

Why Isn’t The Bank An Option?

A lot of startups find disappointment when they approach a bank for a loan to get themselves off the ground.

Unfortunately, history has shown that being too willing to offer new businesses money can result in heavy losses, and banks have learned for their mistakes. Before you can convince a company like this to support your venture, you will need to prove that it can make enough to pay it back, and most startups just don’t have the income.

Choosing the funding option which you use for your startup has always been a challenge. It’s becoming more common to find businesses which cost nearly nothing to get started, opening the doors to another idea for you to consider.

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Finance

Best Cryptocurrency to Buy – Which Is Best?

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A lot of people might say that cryptocurrency’s big moment has ended. After the sharp rise and precipitous fall of bitcoin, many strait laced investors soured on the idea of crypto investment. Crypto’s 15 minutes of fame were over, the thinking was, and it was time to move your money back to safer, and more standard commodities.

This, however, is just not true. Cryptocurrency continues to be a sound investment, if you know the best cryptocurrency to invest in. We’ve compiled a list of four great picks below.

Ethereum

Ethereum is sometimes thought of as bitcoin’s chief rival, which perhaps makes it the second-most famous cryptocurrency. Ethereum is also commonly thought of as an expansion of blockchain technology beyond bitcoin. It is traded as a cryptocurrency, but it also has value as a decentralized computing platform.

Ethereum includes a programming language that runs on blockchain. So, it is used by developers to create apps, including health and security infrastructure, music licensing services, and even anonymous browsers. Ownership of an Ethereum token is recorded on the shared blockchain ledger, as it would be on any cryptocurrency.

However, Ethereum expands this practice to record the ownership of copyrights, music, documents, financial instruments: anything imaginable. By purchasing Ethereum, you are investing in this network, rather than the security as such. For this reason, Ethereum is an excellent investment and one that the savvy investor should be scoping out.

Bitcoin

For fame and notoriety among the cryptocurrencies, none can match bitcoin, the original cryptocurrency in many people’s minds. Now more than a decade old (the mysterious Satoshi Nakamoto published the bitcoin white paper in 2008), bitcoin has had its share of ups and downs.

For the savvy investor, though, bitcoin can still be a sound investment. After the massive — and massively famous — December 2017 peak, the price of bitcoin has held steady between $3,000 and $6,000 per coin. As bitcoin matures as a security, it is looking more and more like a place to park your money, rather than the white-hot investment it was two years ago. This is not a downside, because investors need (and will take) both options.

Dogecoin

It started as a joke — a play on the classic “doge” meme. But since its inception in 2013, Dogecoin has grown to a market cap of over $312 million dollars in April 2019, with values soaring as high as $2 billion in January of 2018. Dogecoin’s value fluctuations will be familiar to anybody who has traded in penny stocks. It maintains a steady mean value, punctuated by regular spikes in its price.

The trick, as it were, is to buy it just after a spike in its price, and to sell it during the next spike. While Dogecoins are not a strong long-term investment, they can be a decent swing investment if you have the time and energy to monitor them. The origins may be silly, but the money is very real.

Litecoin

Litecoin is a cryptocurrency specifically developed for zero-cost payments. Litecoin was developed to have a faster transaction confirmation than Bitcoin. This emphasis on fast, secure transactions has made Litecoin one of the most popular coins with businesses interested in security.

For this reason, the value of a single Litecoin has risen from $30 to $78 in the past six months, well below the mean value. This is the perfect opportunity for an investor to swoop in. As security becomes increasingly important to businesses across the board, Litecoin begins to look like a better opportunity than ever.

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