How to Know that your Business Needs External Funding?

Among the many challenges that people face when it comes to starting a new business, one of the most important one is to manage the financial resources that will funding your business in the near future. The first few months after starting a new business are the most challenging and one needs adequate amount of finance to help and support their business. The entrepreneurs need to understand the amount of time they will need until their revenues finally catch up to the costs. Ina majority of the cases, the new start ups have to endure during the initial stages and it may last for about onto two years. Now to cover up for these losses you need money to tide you over!

Now here are a few steps by adopting which you can determine whether your business needs extra fundings or not!

Understand your financial needs

Now to know if you have adequate money or you will need more, first things to do is to understand and analyze all of your financial needs before you start on this new venture. First of all try to figure out all of your expenses which you can divide into recurring expenses and also one time start up costs.

Add up your costs

For this you need to calculate your onetime costs which may include various aspects like  starting inventory, registration of your business, license and permit fees, long term assets, office supplies and equipment’s, cost involved in we designing etc. then you need to calculate your recurring expenses which may include things like  wages of your employees, cost of raw material, rent or lease payment cost, marketing and advertising cost, financing cost, office and plant overhead and maintenance cost.  These costs are determined to help you understand your initial as well as you follow up expenditures that you will be needing later on to estimate the value of money that you have to have at your disposal.

Calculation of your financial resources

To do this you have to figure that value of money that will be generating every month during the initial days of your start up.  Determine the value of the capital that you will have. Then go out and research the potential markets for you and all of those industry averages that can come up with more realistic figures.  After this adjoin both of your financial resources and expenses that you have estimated in the form of financial projections for your company. This way you will easily be able to understand whether you will have some kind of financial shortfall or not.

Now that you have determined whether you will need some sort of financial investments or not, you can go ahead with it. If it seems like you will need financial assistance, then you fill that gap by either using your personal investments, approaching to your friends or family, you can also go for debt financing or try other methods.

Conclusion

Thus by following the above procedure step by step you can determine whether you need external funding for your business or not.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.