There are many reasons why people choose to start up their own business venture with the worry of losing a job and the allure of the freedom of being the boss being the most common. Creating a booming enterprise is never a guaranteed outcome but budding entrepreneurs with intelligent concepts will massively improve their chances of success with a carefully crafted business plan. However, it is also crucial to analyse a variety of financial aspects to help to determine the feasibility of starting up a new business.
Let’s look at some of the most significant financial points to think about:
How Much Should you Invest & How?
There are a few ways to get the money together to start up a business from finding eager investors to using your own savings. However, in general the most conventional way to fund the cost of starting up a business is to get a business loan and this entails doing a lot of research to source the best deal. When working out how much is too much to invest, entrepreneurs will need to consider all of their options and then work out which one entails the least amount of risk.
For example, if you only have enough money saved up to start it but not enough to take you through the initial stages or a quiet patch, then loan will be a more advisable option.
Taking out a business loan can fund the cost of the start-up period as well as future expansions and increasing profit margins and this type of business debt can be a huge advantage in the initial stages. However, many small business owners will be required to guarantee the loan – meaning that if it isn’t successful, the debt will become a personal one. Weighing up the financial risk is the first step to take in order to assess how much is the right amount to invest and where you should source it from.
How Long Will your Savings Last?
The majority of them will not turn a profit for at least the first one-two years, which makes it essential for you to have enough savings to live on until you can afford to pay yourself a salary. Temporarily cutting back on your outgoings is a voluntary way to eek your savings out for longer and here are some calculations you will need to do to work out how long your savings can carry you through for:
• Work out your monthly outgoings/expenses • Decide what you can realistically cut back on • Recalculate your outgoings/expenditures
It is simple to tally up the cost of your semi-set outgoings such as mortgage payments and utility bills but when creating a personal budget, it is important to think about variables such as a birthday or a school trip and always leave some spare cash to cover yourself in the event of an emergency like an expensive vet bill.
Don’t forget to get an accurate figure you will need to include additional outgoings created by the start-up of a new business such as the cost of employing an accountant that might not be immediately covered by your revenue.
What Affect Will it Have on your Taxes?
Paying taxes as a owner is far different to paying personal taxes as an employee and it is imperative to know the specifics of Gibraltar taxation or whichever country you’re based in.
Because there are numerous taxes that you might be responsible for, it would be wise to find a few good tools such as a w-4 calculator to help accurately determine the amounts. Some tax implications you will be responsible for include:
• Business income tax • Property tax • Employee tax • Gross receipts tax • Self-employment tax • Sales tax • Excise tax
Every penny counts as a new owner, so it is advisable to contact the tax department for information about taxation to take advantage of the financial relief this can provide.
Other points worth thinking about include the cost of taking out disability insurance to cover you if you are unable to run your company, how you will pay for necessary expenditures such as petrol or employing staff. Also remember that getting a loan will be easier when you are not just about to enter the crazy yet wonderful realm of self-employment.