Assessing How Much You Need
Part of the business planning process is to determine how much money it will take to start and operate the business until it can generate the revenue to support itself. Your business plan (from Chapter 5) involved drafting a financial plan that included identifying your funding needs (capital, operating, and reserve) and forecasting your cash flow. Your business plan also allowed you to set goals for the times when you'll break even and then start to earn a profit.
It's good planning to work with three financial scenarios, especially when it comes to cash flow: your best-case predictions; your worst-case predictions; and one set of predictions that's pretty much in the middle. That way, you'll be mentally (and financially) prepared whatever happens.
By adding up how much (1) you'll need to invest in your assets to start the business (your initial capital); (2) you'll need to operate it on an ongoing basis, (operating expenses); and (3) you'll be bringing in (cash flow), you'll clearly see how much you'll need in start-up funding. Assess in detail at least the first six to twelve months of your needs this way.
Ensuring that you have adequate financing to take you and your family through the start-up phase of your home-based business is critical. You need to be completely honest with yourself about your personal income and expenses, and you need to be realistic when it comes to forecasting your business's needs. A strong foundation that's based on solid facts and figures will give you the edge you need when it comes to assessing where and how to seek financing.
