Most people hate thinking about money. They dread it, fear it, and will do almost anything to avoid it. Entrepreneurs are no different. But looking at a business’ finances doesn’t have to be daunting. Here are some first steps:
- Think about the options for getting capital to start your business. Crowdfunding, angel investors, and lenders are some of the most common. Venturize is a non-profit that has information to help compare borrowing options.
- Before you approach a lender, keep in mind the lender will want to see how you will be able to repay the loan. Keep the lender informed if your plans change through the process, for instance if you get some unexpected money that reduces the loan amount, or if the ownership of the business changes.
If you are thinking of having an accountant keep the financial records for your business, it is still important that you understand them. Have these in mind as you meet with your accountant or bookkeeper:
- Keep business and personal money separate. This helps you track the status of each and makes filing taxes much easier.
- Make a balance sheet for your business at least annually. A balance sheet shows what your assets are, what your liabilities are and how much the owner(s) investment in the business is.
- Make an income statement monthly (also called a profit and loss statement). An income statement shows what your total revenue is, what each of your costs are, and how much net profit you have.
- Lastly, know your break-even point. A break-even point is the dollar amount that you must receive in order to break even. Any additional revenue is profit. This equation assumes that all items you sell have the same price and variable cost. Most businesses would have to calculate for multiple types of items.
It may not be the most fun you’ve ever had, but you will be glad you spent the time to think through these basics as you move forward with your business idea!
Amy Williams is a Project Specialist with MACED. MACED has a Project Specialist in each of our Berea, Hazard and Paintsville offices to work with entrepreneurs through their challenges and connect them to resources. To learn more, please visit here.
