How Much Cash Does Your Start-Up Need?

Unfortunately, “how much cash does my start-up business need?” is a similar question to the notorious “how long is a piece of string?”. Simply put, the answer is as variable as the number of start-up companies which can be imagined. Your need for an injection of cash at the beginning of your business venture will depend on the assets you need to buy in order to start functioning, the availability of real estate in your locality, and the number of pledged customers you are able to rely upon immediately.

In order to get on top of these various factors, you will need to start the process of financial planning. Firstly, you should list all of the assets and expenses that your business will need immediately. For example, a small bakery cannot generate any turnover without at least a basic oven, as well as some money to pay the rent and put down a deposit on the business premises. You should then produce basic financial projections for the forthcoming year, based on a realistic assessment of your prospects. If in doubt, be conservative and cautious, as it is much better to be pleasantly surprised by a surplus than to suddenly find you cannot meet your obligations.

Next, you will need to ensure that you have financial recording systems set up, in order to monitor your income and expenses in real-time. This is particularly crucial at the beginning of your business life, as you will need to know your exact cashflow status. If you are new to financial planning, consider getting some professional help. The importance of proper financial control cannot be overestimated, and it is often worth a small expense to make sure that you have produced something comprehensive. Importantly, you must make sure that you enter your income and expenses at least monthly into your projection updates and accounting systems, rather than as a lump sum over the year. If you assume that your income and expenses will be identical each month, you are likely to encounter cashflow difficulties sooner rather than later! Indeed, at the beginning of your business life you should consider making weekly plans, as numerous expenses will inevitably arise which you have been unable to predict ahead of time.

In your first year of operation, you should usually expect to make a loss. This is normal, and represents the significant investment into infrastructure which is likely to be required, and the time it takes to build a customer base and advertise your business fully. For this reason, you will need to set aside a contingency fund, both for your business and for your personal expenses. Unless you are extremely confident of making an immediate profit (for example, if you have a large existing base of customers who have pledged their support from a previous business venture) you should allocate at least six months of living expenses before you launch your business full-time. As always when launching a business, it is better to be safe than sorry.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.


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