The Financials, Yours & The Business

At this point it is helpful to consider your own financial needs and the financial needs of the business and to begin to identify potential sources of investment for the business or low cost start-up strategies that will allow you to get started.

Your Finances

In Reality Check 1 you completed the Personal Survival Budget, if you didn’t go and do it NOW! (You can find it here).

If you have been honest with yourself you should have a reasonably clear idea of the level of income you need or want from your new business.

You should take a little time to revisit that exercise and check you haven’t missed anything major out.

Anyone starting a new job or new business will incur different (and often additional) costs to those they had when not working or working at something else. Typically your costs for clothes, travel, lunches, hospitality, socialising etc may change.

Try and estimate or at least take a “best guess” and create an updated version of your Survival Budget taking those changes in to account. Keep an original version too – it may come in handy later.

Business Finances

If you become a “Sole Trader”, you and your business are one legal entity. Some Sole Traders regard all the money they have as theirs and that can cause a range of problems and confusion, so in general we advise keeping your money separate from that of the business.

Business Finances can be a complex topic so we will use the KISS principle – KEEP It Simple Stupid!

We will look in turn at the following:

Your Start-up costs
Your Operating costs
A few practical Principles of Costing and Pricing

At this stage we are NOT going to look at:

Book Keeping
VAT
Tax etc

These are all things we can consider more appropriately once we are clearer about the nature and scale of the business.

Start-up Costs

Your Start-up costs – these should include all the things you need to do, to buy, lease etc to get up and running.

Task 1a – Start to gather a list of all the things you think you need to start the business.

Task 1b – Start to put prices against the items on the list. Depending on your funding – are there lower cost options?

Operating Costs

Your Operating costs – these are all the costs you incur running the business on an ongoing basis. These costs will vary depending on your business model – but more of that later.

Task 2 – Start to gather a list of all the things you think you will need to operate your business,this should include all supplies, services, utilities etc.

Costing and Pricing

Costing can be a challenge, usually the easiest way of dealing with it is to align your costs to the actual levels of activity and resources used in a process / activity. This is sometimes termed Activity Based Costing.

Defining it simply – doing things costs money – Activity Based Costing is about finding out just how much!.

If you want to know more, you can find a Wikipedia article about it here.

More information will be added shortly.

Pricing can similarly be a challenge. Essentially there are two ways to Price a product or a service:

Cost plus – where you add up all your costs and add a margin for profit.
What you can get away with – which is the price the customer will bear and the market can sustain.

in the classroom or coaching situation we discuss the benefits, drawbacks and issues of each.