Few successful entrepreneurs would make their first million, or even part of it, if they had to make it with their own money alone. If you’re dreaming about joining their ranks, but in the dark about raising the stakes, read on to see the light on the first steps to funding success.
You don’t have to be a fortune teller to answer these questions. You need only make educated guesses. Complement your own knowledge with the best information you can find. Tap your contacts or search online. The more realistic your assumptions are, the more believable they’ll seem to business funders.
It’s smart to set goals on a calendar or spreadsheet schedule, so you can make your assumptions for each stage of business development in advance. Start by projecting the first 12 months. You know you’ll need seed money to set-up your business and cover overhead until cash flow is positive. How much you’ll need in Month-1, and whether you’ll need additional cash infusions along the line, the following answers will tell.
You need to fund operating expenses, such as workspace rental and utilities and insurance, equipment lease charges (or financing costs, if not outright purchases), telephone and network charges, salaries and benefits, legal and accounting fees, plus miscellaneous expenses. If you sell goods, you need to purchase or produce the inventory sold in each period. And you need a marketing budget.
At the very least, you need the excess (if any) of total cash outflows (expenses and purchases) over total cash inflows (sales receipts) in each period.
Until cash inflows meet or exceed outflows, you need short-term funding (typically, a line of credit or a working capital loan or business development grant) to cover cash shortfalls. Long-term financing is usually associated with purchasing long-lasting assets – equipment or buildings, or even an existing business or a franchise.