Does your business have enough money to be a real success?
Written by Peter Lyster from www.nochex.com
The first thought on many peoples’ minds when they start their own business is what will I sell? They think hard about products and markets, about the design of their website, they might even think about the service they will use to get paid!
Very often, however, they give little thought to how much money they need to get started. More often than not they think about how they can run their business on an absolute shoe-string and put aside thinking about funding and cash-flow until the orders start rolling in.
This can be a mistake, because having enough money for your business is probably the most important factor that will decide between you being a winner or a loser, a success or a failure.
Having enough money for your business is not the only important consideration, but it is among the most important when it comes to your success.
Some people leave the ‘financial stuff’ to their accountant, but it is well worth having even just a rudimentary appreciation of things financial if you are going to make your business a success.
When people talk about having enough money in their business, accountants think working capital. It does not matter how big or how small your business, working capital is important – essential – for every business. Having enough means your business has enough money to cover its short-term costs.
Think in terms of working capital being cash, money you can quickly get your hands on and spend.
Many people make the mistake of thinking their stock is like cash. They think that because they can sell it they can quickly turn it into cash. However, there can be many reasons why this may not be so.
Working capital is a measure of your business’ future credit-worthiness. When you need to borrow money, perhaps to add to your stock, a bank or even your suppliers will ask how quickly they will get paid. Don’t assume that because you think you have a great business idea they will too.
How do you build working capital?
For small businesses establishing a line of credit can be a really good idea! Having funds available puts you in a better position with your suppliers, by negotiating discounts, and provide you with the means to take up opportunities when they arise. It helps you to build a credit history that can make it easier to borrow money and at a lower rate in the future and to do business with your customers.
To start with small businesses can experience the most difficulty raising funds. Many use their own money or will borrow from family and friends. Banks are reluctant to invest without a proven history of successful trading. These days’ third party funding organisations like Everline can make it easier, but business owners need a shrewd idea about how much money they need and how long it will keep their business going.
When you begin trading you need to make sure that you keep enough money in your business to cover the costs of trading: making sure that you can pay your suppliers on time; make sure that you keep enough money to cover refunds from your customers should they require it. Many people make the mistake of taking money out and then find they have to pay charges to put money back in.
You need working capital to keep working
One of the ways that we describe working capital is as the amount of money that a business needs to keep going. You need to keep an eye on your working capital because it is the amount of money you need to keep your business going until it breaks even and starts making a profit.
Working capital is just one measure of a company’s ability to keep going. It is not the only one, and having it certainly is not a guarantee of a business’ ability to pay: you can have enough money to pay the bills today, but not enough for tomorrow.
Not having enough cash is the main cause of failure for all businesses. By thinking ahead and making sure you have enough working capital you can give your business its best chance of being a winner.
For more information visit http://www.nochex.com