Building your dream business while still employed full-time can seem impossible. Not only is it possible, but we can help! We wrote the “16 Steps to Starting a Business While Working Full Time” eBook to guide new entrepreneurs by completing tasks step by step.
In step 5, we will cover how to figure out your startup finances.
If you need a reminder, here are the first four steps: select a business, create a business plan, establish goals and choose your marketing methods.
Many part-time entrepreneurs use their own savings or loans from friends and family to fund their startups. But are you managing your business finances to help you grow?
What financial information should you know?
Projected Startup Costs
- Do you know how much money you need to start your business?
- Think about the following factors: equipment, inventory, insurance, legal costs (to incorporate the business and get proper licenses), wages, taxes, and more.
- Where are you getting the money?
This number will help you determine how much you expect to earn in a given time.
- Estimate the units of products or services you will sell. These units could be hours or products.
- How many units do you think an average customer will buy?
- Finally, estimate when you will get paid. This depends on the industry and when you bill your customers. Do you sell shirts from your home and get paid immediately, or do you bill monthly for your marketing services?
Gross Profit Margin
Your gross profit is revenue minus the direct costs of goods sold. Gross profit margin is gross profit divided by revenue. This will show you how profitable your business is and helps you monitor sales goals.
The breakeven point occurs when your gross profit (revenue minus cost of sales) equals your fixed operating expenses. To calculate the breakeven point, divide Total Operating Expenses by Gross Margin (as a percentage of sales).
BREAKEVEN SALES = TOTAL OPERATING EXPENSES / GROSS MARGIN PERCENT
You should reach the breakeven point after six to 18 months in business.
Cash Flow Statement
The cash flow statement details collections and payments. It’s similar to a checkbook register, showing your opening balance, expected deposits and withdrawals, and an ending balance.
Now that you know what numbers you should know, here are tools to help you manage your finances:
Business Bank Account
Do you need a business bank account even if it’s a side business? Yes! Separating business and personal expenses helps avoid any tax problems. A business bank account also adds validity that you’re a real business and allows you to build your business credit rating.
If you plan on selling in person or online:
- Find a credit card processor to accept credit and debit payments.
- You can even accept credit cards on your mobile device with apps, such as Square, Intuit GoPayment, and PayPal Here.
If you plan on invoicing after you provide services:
- Use software that allows you to email invoices to get paid faster.
- You can even accept online payments directly to your business bank account.
You may not think you need accounting software as a startup, but using one now will help you prepare for growth. Options include QuickBooks, Sage One, and Freshbooks.
Read the remaining steps to entrepreneurship in the “16 Steps to Starting a Business While Working Full Time” guide. Becoming an entrepreneur can be difficult, but you’re not alone. Connect with a free business mentor at SCORE. Good luck, and remember to take it one step at a time.
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.