The number of company registrations at Companies House hit a record high in 2014 with 581,173 businesses registering.
With this growing number of startups and entrepreneurs, we have put together the top 5 questions all startups should be asking before they spend a penny.
1. Is my idea financially viable?
Before you do anything, you need to know if your idea is a viable one. You need to know what the numbers involved in bringing your idea to fruition are. Once you have these to hand, you should then forecast them to see if your startup idea is going to make any money.
It is far cheaper to spend a bit of time researching the expected incomings and outgoings of your idea to see if it financially viable than to spend money on an idea that will eventually fail.
2. What is my break-even point?
So you know your idea is a good one and that it is going to make you some money, but when? This is a crucial piece of information you’ll need when planning your business and will need to be included in the financial forecasting section of your business plan – more on this later.
Knowing your break-even point (when you are invoicing more than you’re invoiced) for each of your product or service lines can help you to identify areas of the business which need attention and those which are out-performing your expectations.
This information will help you to better manage your business and plan more successfully for the future. As a startup, you’ll need to keep a close eye on important financial indicators such as break-even points and cash flow levels to ensure your startup doesn’t get into trouble.
3. What are my funding options?
There are a number of different options when it comes to funding your startup and these have grown since the start of the economic downturn in 2008. Before the banking crisis, almost all new business funding came from banks but as this funding option dried up, startups have had to become more creative.
Crowd funding has become increasing popular with startups and SMEs looking for funding with sites such as Funding Circle lending over £737 million to businesses since their conception in 2010.
Other funding options include;
- private funding from saving, family or friends,
- investment from other businesses,
- bank funding or,
- grants from government or other bodies.
There are a number of different options available and each comes with its own stipulations and risks so do your research before you commit to anything.
4. Have I included everything I need in my business plan?
Next step – you are going to need a business plan to move your startup idea forward and obtain the necessary funding.
There are a variety of different pieces of information which need to go into your business plan but the main ones include:
- Your business objectives
- Outline your financial requirements
- A full financial forecast including; cash flow, break even and profit/loss
- A marketing plan
- A clear action plan
- Measurement indicators
For more information on what to include in your business plan, visit the GOV.UK website.
5. How will I manage my cash flow?
Finally, you have secured the funding for you startup idea and have put your business plan into action. So, how are you going to manage your money on a daily basis?
Managing the cash flow of your startup is critical to success and the only failsafe way to really manage your cash flow is to forecast it on a regular basis.
You accounting software will be able to show you how your business is financially performing retrospectively but this won’t help you to plan for the future.
Only dedicated forecast software will show you how your cash flow is doing and how it will perform in the future allowing you to avoid problems before them occur and reinvest surplus cash as it becomes available.
For more detailed advice on managing your cash flow, read 10 Top Tips to Better Manage Your Cash Flow From Operations.
Visualise the future. Will your business be profitable, or a dead weight? What if you changed your prices – or didn’t meet your sales forecast? Better-informed decisions mean a stronger business.
Author Bio: Lynsey J Bowen (BA, MSc) is the marketing manager of FINANSCAPES online forecasting software. We have specifically designed our cloud-based financial forecasting tool to give you professional, error-free forecasts to reduce the risk of your start-up and increase your success rate.
