Now that you have a business plan, you know the legal structure of your business, and you have a good understanding of your demographics, you are ready to assess your finances and what your limitations are. It is very important to know where you stand financially and what exactly your business requires in terms of money. Is your business something that you can start out of your home? Or, does your business require a larger financial investment, like a manufacturing company? I must admit that I have never been a big numbers person and personally hate dealing with finances. So, for me, this step was difficult.
Realistically evaluating your finances is a difficult step for most people, it can also be kind of depressing (depending on how large or small your bank account is). Unless, of course, you are Bill Gates, in which case you can pay someone to do this step for you. Some people will want to skip this step simply because it can be difficult to be honest with yourself about where you are at financially. No matter how difficult that may be, it is absolutely essential that you determine what you can afford for you business and what you can’t. This can help prevent you from taking on too big of a loan or investing too much too soon.
Figure out what your business NEEDS (notice, needs and wants are very different) to get started. Don’t go out and buy yourself a brand new van when you could buy a used one off Craigslist, don’t go rent a shiny new office downtown when you could work out of your home. You want to try to start your business with as little investment as possible, that way if you do fail (that’s a big IF), you haven’t just lost every penny you ever saved on some $40,000 van that you can now only sell for $30,000.
Remember, finances don’t just include how much money you have and how much you need. This also includes your time. You need to assess how much time you are realistically able to spend on your business. After all, time is money. How much is your time worth? Don’t sell yourself short, you deserve to paid what you want to be paid. So, make sure you set up your products/services in a way that pays you no less than what you value your time at. If you want to be paid at least $25/hour, don’t go clean people’s houses with your own van and cleaning supplies for $15/hour. Factor in cost of production, materials, time getting to and from different locations, and time spent on administrative tasks. Even if you charge $25/hour, but are still using all your own equipment, you aren’t getting paid $25/hour. Take your minimum pay + all expenses and that is what you should charge, whether it be by the hour or by the service.
Remember, always pay yourself first. My fiance always says, “Find a way to make your money work for you.”