 Before starting a business, it is vital to ensure you have sufficient financial resources to cover all of your expenses. First you need to work out your establishment costs, to do this:
- Work out how much working capital you will require until your business is making a profit:
To calculate your working capital:
- Work out how much money you will need to cover your personal expenses each month (including paying off any debts, rent, bills, entertainment, food etc) this will be your wage or drawings.
- Estimate your businesses monthly income and expenses (this should include your wage or drawings). If you have more expenses than income (which is likely for the first year or two) the shortfall is your working capital requirement.
- Add up your initial capital costs (purchasing any equipment you will need, land, buildings, vehicles etc).
Business.gov.au provides a link to a useful guide on Financing Your Business with a section on Determining Your Financial Requirements.
- Work out how much of the money that you currently have, that you can afford to put into your business - this will be your opening balance.
- Calculate if you have enough money to start your business, or if you will need a loan. To do this:
| |
Opening balance |
$____________ |
|
| Less |
Establishment costs |
$____________
|
(working capital requirement and capital costs) |
| Equals |
Cash flow position |
$____________ |
|
If your cash flow position is negative, it is likely that you will need to borrow money to start your business, if this is the case, you will need to:
- Add up the value of your major personal assets (things you own that could be quickly sold for a reasonable sum of money) that you would be willing to use as security for a loan
- Add up your liabilities (money you owe)
- Review your own savings history and credit history
- Write a list of all of your personal assets that you currently own that would be used for the business. This is your equity.
It would be a good idea at this stage to seek some assistance or contract an accountant.
- Look for grants, loans and subsidies which may suit your needs.
- Check out the details of free or subsided business assistance and mentor programs available in your area.
- Look for an accountant:
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