Many people dream of starting and running their own small business. Regardless of the type, all small businesses need a serious financial plan in order to gain, and maintain, a solid footing.
The financial aspects of the business are critical to its success. A business financial plan is required, as it describes how the business makes money. For a start-up, it is important to determine both the expected initial costs as well as the anticipated regular monthly expenses. Most people bankroll their start-up to cover at least three to six months of expenses, in addition to the initial foray. This amount may be raised or lowered, dependent on how long it will take to generate revenue that covers the monthly bills.
On an ongoing basis, there should be regular updates to the balance sheet, income statement, cash flow statement and personal finance summary. This will help to maintain an accurate assessment of the business’ financial status.
New owners should be careful about liability exposure. The proper corporate structure to separate personal assets from the business is crucial, and liability insurance may also be a wise choice for certain products and services. Tax planning is another area to assess; taxes can be a large business cost. Different corporate structures are taxed differently. A savvy owner is also aware of the range of available business deductions.
An important monthly expenditure that small businesses may overlook is the cost of payment processing. For many, this means credit card processing costs. The total cost can vary greatly, as it includes fees that are scattered across many aspects of the contract. There are initial fees, monthly fees and transaction fees. Processors use different merchant accounts, and the account fees can vary. The transaction fees for credit card processing are usually tiered according to a combination of the number of transactions, transaction amounts and company profile. In addition, different merchant accounts feature different services, and it’s important to verify that the account will work well with the business structure.
Good financial planning is necessary, and a prudent owner will look carefully at this aspect of the business.