You’ve got a business idea, you’re ready to get stuck in, but you need funding. There are many funding options available, such as loans, investments, grants and crowdfunding, and we looked at all of this in more detail in our earlier blog post. However, before you ask for funding, you need to ask yourself: “What do I need funding for?” This is an important question because it helps you to determine how much money you actually need, and if you’re approaching investors it’s also a good idea to show that you are financially responsible and have a business plan in place that explains how you will spend your money.
What should you spend your money on first?
There are probably several things that spring to mind when you think about how you could spend your money, but the last thing you want to do is burn through your cash as soon as you get it. That rainy day could come sooner than you expect, so it’s a good idea to bear this in mind, and prioritise your needs at this early stage.
Start by making a list of everything you need and how much it will cost, then look at your list and prioritise each item. What do you need to buy or do first, and what can your business not survive without? What tasks cannot be completed without you first investing in something in particular? You may find that there are many things you feel are high priority and you can’t get started without them, but there may be some things that you could do without temporarily.
Examples of essential costs in your first year include (but aren’t limited to) insurance, an accountant, legal advice, and branding. You might be tempted to go for the cheapest options, but you should buy quality when it comes to essential business services. Paying for a mediocre service is always going to be a false economy, no matter how cheap it is. Depending on your business, your premises may also be an essential cost, as well as any initial product stock or supplies.
What should you avoid spending money on?
A few things that aren’t essential to your business (but you may still be tempted to spend money on) include expensive business trips and lunches, new clothing, and fancy office furniture. Think about what your business needs rather than what you want – you should invest in the essentials such as furniture, but remember that you don’t have to buy the best straight away, and everything can be upgraded later. This is also a good rule of thumb for technology, such as computers or points of sale – do you really need state-of-the-art equipment, or will you be able to carry out your daily tasks just fine on something cheaper?
How will you make your money last?
Making your money last is all about planning. That’s where your business plan comes in, along with a lot of forward thinking and a little restraint. Once you’ve secured those essential items and services that you need to get your business up and running, in theory you should be able to begin trading and start making money. Continuing to prioritise what you need to spend money on can help you to keep a handle on your finances. As your business plan should be a living, breathing document, it’s a good idea to keep referring to it, adding to it, looking at how your financial situation is going, and considering how you should spend or save your money in order to meet your ultimate goals.
If you would like help with writing a business plan that will help you to plan your finances and to secure investment, contact us online using the form on the right or call 01604 420 420.