Financial Understanding for a New Business

Financial understanding is of paramount importance when starting a new business.

New businesses are far more likely to fail without an understanding of financial aspects.

New businesses often thrive on unearned cash. That is, expenditures often exceed revenue. The cash coming in is rarely greater than the cash going out.

Consequently, understanding the cash flow necessary to get your new business up and running in a healthy fashion is necessary.

If you’re planning a new business venture, maintain a report that documents expected cash flow. Begin with a simple spreadsheet or business plan software such as LivePlan.

What will you need to purchase, not including capital expenditures? How much will those items cost?

Will you hire employees? If so, what are the employment taxes that the business will be responsible for remitting to state and federal agencies? Also, workers compensation insurance will be necessary.

Do the research necessary to account for necessary expenses adequately.

Cash will be needed for day-to-day expenses in your new business.
When will revenue start to be realized? How many months into the business development process? As revenue is earned, will Sales be realized in advance of payment? If so, how will the Accounts Receivable be managed?

Will a loan or investors be necessary to get the business up and running? If funds are obtained from a business loan or line of credit, plan on how those funds will be repaid. That must be a consideration in your cash flow projections.

Find financial understanding in consistently assessing the financial strength of the business with a comprehensive view that includes the following:
  • Income Statement
  • Balance Sheet
  • Cash Flow Statement

Remember, a business can appear to be profitable on a Profit & Loss Statement yet be going under due to lack of sufficient cash coming into the business.

Will your new business have enough cash to reach a viable operating position?

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