What will it cost to turn my idea into a business?
Getting the finance in place to launch your business idea is one thing, but it's another thing ensuring you have enough money in the bank to see you through the first months or when the time comes to expand.
So you have your marvellous business idea. Now you're either about to write a sparkling business plan to set you on your way or you're preparing to take your business to the next level. Either way, you need to plan financially to get things moving.
One of the biggest mistakes businesses make is not thinking clearly about the cost of their overheads, explains Matthew Perkins, from Business Link . 'If you're launching a business do you have enough money to pay your domestic and utility bills for the first few months while your business is establishing itself?' he asks. When you're planning those initial stages, it's also important to factor in your own living expenses during the time before your first pay cheque from your new business. Make sure you have enough saved to tide you over so you can focus all your energy on the success of your business, rather than worrying about your personal day-to-day expenses.
And once that first pay cheque is safely framed on your office wall, you need to use the same forward thinking for the next steps. 'If you're expanding, do you have the finances available to take on more staff or purchase more equipment?' asks Matthew. It is scenarios like these that need to be considered.
Planning for every eventuality
Only five years old, the organic food brand Ella's Kitchen is one of the UK's fastest growing companies. Its founder Paul Lindley knows what it's like starting a business from scratch after building the company at his kitchen table.
'You need to consider more than one option for how you're going to make your business idea work,' he says. 'Discuss your ideas and financial plans with external advisers such as your accountant or bank manager. They will check all your assumptions are realistic as it's easy to get carried away with your own business.'
The first few months of trading
If you're in the first few months of business there will be a range of cost factors to consider, depending on which sector you're trading in. If you're a service business and you've set up from home, there are few overheads, but you need to remember to pay yourself a living wage to cover your household bills. If you are producing a product or setting up in the retail sector, you must consider rental costs and stock levels.
In the early stages cash flow is often the key to survival and this means introducing and maintaining a strong payment schedule. Businesses must ensure that they can keep producing the product or service until the first payment comes through from customers and suppliers can be paid.
Evolving and expanding
Once through the initial stages, it may not be long before you're thinking about expanding the business. Whether this is extra staff, new premises or going online, all this costs money and what you want to achieve should form part of your original business plan.
It's important to ask yourself what extra costs will be involved with expanding, even down to the small details, for example, the costs of re-training your staff if necessary, spending more on marketing to get your business seen and even a rise in domestic bills, such as electricity and insuring your business. Overlooking these areas could make the difference between business boom and having no business at all.
Paul Lindley knows all too well the importance of planning ahead and ensuring you are able to fulfil business dreams without putting your company at risk.
'If we rested on our laurels then we wouldn't be unique in two or three years' time, so we're always looking at other ways to bring innovation through,' explains Paul. 'But focus your energies on making a success in a key market before moving on.'
But whether you're starting or growing your business, the key to sustaining a healthy company in any sector is careful financial planning. Work out and list the payments you're going to have to make over the next week, month and year. Then do the same for the money coming in. Only once you've accurately calculated your income can you begin to think about expanding and how your business can financially support any changes you make.