If you have that entrepreneurial spirit, the prospect of starting your own business seems like a dream come true. You’re certainly not alone! Businesses with less than 20 employees make up 89% of America’s economy. That’s a lot of folks grinding it out in the small business world! There’s so much to think about before you open the doors to your new business, and digging into the details is the key to being successful.

Unfortunately, per recent data, only half of all new businesses will make it past five years. What causes this somewhat startling failure rate? One of the biggest contributors to the downfall of many startups is problems with cash flows. Even with all the other business to-dos running through your head, you must prioritize the financial side of the equation in order to remain successful. If you are unable to effectively manage your cash flows, your chance at putting your great idea into action and running a growing and thriving small business could come to an end. You can’t afford to neglect the details…literally.

But no worries! We’re here to help. Here are six financial questions to ask yourself before you hit the ground running with that snazzy new business venture:

Question #1: What are my costs?

Costs for a new business come in two categories – initial startup costs and ongoing overhead. Tackle figuring out your startup costs first. Decide on what you absolutely must have to get your business off the ground, and the real cost of all those essential items.  Think computers, furniture, inventory and any other items to get your business to the point where you earn revenue. Then figure out what you’ll have to pay every month to keep the business moving forward. Overhead includes salaries, internet service, cell phones, rent and other expenses that continue to occur on a regular basis.  Being as precise as possible with your estimated costs is uber important.  You really need to get down into the number weeds here. Underestimating your cash needs before you start can often lead to cash flow issues later on.

Question #2: What will my monthly cash flows look like?

Cash flow is money coming into your business (revenue) versus money going out of your business (expenses). Assume the worst-case scenario. This can be tricky, because of course you think your business will thrive right out of the gate. It’s better to assume your business will grow slowly. That way, when you really start hitting it out of the park, you’ll have nothing but good surprises.  Every business is different, but there are many available resources to help build out realistic revenue expectations for yours.  If you need help finding industry specific resources please reach out.  We love helping our clients research new and exciting ideas.

Question #3: How much capital do I need?

Once you’ve figured out your projected cash flows, determining how much capital you need to get started is pretty simple. You should have at least six months of operating money on hand before you launch your business. Again, overestimate here to be on the safe side. You don’t want to financially limit yourself from the start.

Question #4: Where will I get the funding?

Where you get your financing for your startup depends on a lot of different variables. There are many options for funding but the two most common are individual savings and friends/family.  Depending on the type of business, you may be able to look to a government agency for assistance, or possibly seek funding from an angel investor or venture capital firm. Small business loans are another great source of funding for business owners who don’t want to use their savings or borrow from relatives.  More than likely, you’ll settle on a combination of these options to bring your dream into reality.

Question #5: Can I take care of my personal financial situation and my business at the same time?

You need to be able to keep a handle on your own finances, even after your business is up and running. Entrepreneurs oftentimes neglect their personal financial situation as they pour their heart and soul into their business. You know that old saying “Time stops for no man”? Well, it’s true, and putting your personal finances on the backburner while you work on your business can be a slippery slope. You need to stay on top of saving for retirement, building an emergency fund, paying your bills, and putting money aside for your future financial goals. We suggest building all these items into your business plan from the start, and counting them as non-negotiable costs of operating your startup.

Question #6: Where do I want to be financially in five years? How about ten years?

You should have two sets of financial goals – your personal goals and the ones you have for your business. We always recommend having a personal plan for where you want to be in five years, and what you want to accomplish in the next ten. Deciding on your business goals is no different. What do you want your business to look like in the next five years? How much revenue do you project to have at the end of a decade? Looking long range can keep you focused during the day to day grind of any business. At the same time, having a financial plan that sets out all your goals gives you a big picture look at where you currently stand, and how your hard work will pay off down the road.

Diving deep into the financials of your new business venture now can help you avoid a lot of unnecessary stress once you finally open the doors. Be up front and realistic about the financial side of your startup, and you’ll be well on your way to success. Have any other questions about new business cash flows and where you stand financially? Drop us a line!