Determining Your Financial Needs

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Every Business Needs Money

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Every business needs money to get started. And just about every business needs money at some point to finance growth or get through a difficult period. Additional capital may also be needed to cope with seasonal peaks or to purchase new facilities and equipment.

Many businesses have failed because the owners didn’t know how to predict their cash needs, didn’t know what sources of funds were available, and didn’t know the most effective ways for obtaining funding. Often these failures were attributed to insufficient financing.

But lack of money isn’t really what makes most businesses fail. Pouring more and more money into an ill-advised venture, or one run by an owner lacking good management skills, won’t make it successful. Money isn’t a substitute for a sound business idea, a well-prepared business plan, and careful execution of that plan.

Smart business owners acquire a basic understanding of financial matters and financial planning in order to avoid becoming victims of financial disaster. Some of the financial pitfalls inexperienced business owners fall into when raising money are not requesting enough financing, asking for too much, not matching the incoming funds with actual business needs, and not considering the real cost of money.

Before raising any money for your business, carefully review your financial needs. The first thing to determine is exactly what you want the money for: start-up costs, increased working capital to meet expenses due to expansion, or equipment purchases, for instance. Be clear about what the money is intended for and how it will help make your business successful.

Once you know how you’re going to use the money, you’ll know how much money you’re going to need. Then determine how you’ll pay it bark. And finally, ask yourself if you can afford the cost of the money, whether that cost is in the form of interest on a loan or having to give up a share of the ownership in the business.

The best time to ask these questions is before you actually have financial problems. This is one of the main reasons for preparing the “Cash Forecast” Any projected cash deficits (negative cash flow) could be a warning that financing is needed. Not all projected deficits require additional funding because you may be able to find ways to reduce expenses or convince suppliers to extend credit terms to prevent projected deficits from occurring.

Though cash flow projections are helpful, they’re not the only way a business plan can help you raise money. In fact, your business plan is your primary tool forraising capital. Investors and lenders both want to see in writing what they’re being asked to put up money for and how they’ll be repaid. Trying to get loans or investments without a business plan is almost certainly a waste of time.

Дата добавления: 2014-11-29