How much do you need to start a business?
Bill Taylor is associate partner at independent financial adviser Ashley Law. When asked his advice to those planning to launch a new business he says: "Be clear about how much money you're going to need and where you're going to get it from.
"Start by looking at your expenses rather than the money you expect to come in. Figure out what it will cost to run your business and build your budget around this."
Use your business plan
Drawing up a budget based on a well considered business plan will help you to estimate how much money your business will need and when. "The start-ups that go bust are those that don't have a good business plan," warns Taylor.
"If necessary, seek advice from an accountant or an independent financial adviser. They'll help you to draw up a budget - and make sure you produce realistic cost calculations."
Your budget should contain sales forecasts, expected expenditure and cash position for each month for at least one year into the future. "A start-up may spend more than it earns for two or three years, so the amount of finance it will need will continue to increase until it breaks even," Taylor explains.
Predicting cashflow
As Keith Churchouse of Guilford-based independent financial adviser Churchouse Financial Planning warns, calculating precisely how much your business will make in its first year is likely to be tough.
"Plan for what you'll do in the event of poor cashflow - you'll need sufficient funds to see you through," he says. "Build seasonal highs and lows into your cashflow forecasts and budget for these."
It can take a couple of months before any revenue enters a business he warns, as well as highlighting the fact that many businesses incur set-up expenses in their first few months of trading.
"Make sure you budget for this, this way you won't panic when you have outgoings but no sign of any income," Churchouse recommends.
Contingency fund
Build a contingency fund into your budget to cover any unexpected costs - don't wait until the need for extra funds becomes urgent.
"If you fail to attract sales or lose customers, or if your product launch is delayed, you'll need sufficient financial reserves to last you for several months without any income from your business," says Churchouse. "Set aside three to six months worth of income that's available in an emergency cash deposit fund," he advises.
• For more information read the "Starting Up" pages of the Business Link website
