The Financial Aspects of a Business

Two businessmen having meeting sitting at table with coffee

Market Analysis

In order for a business to succeed, there has to be a market for its products or services. To determine if that market exists, get expert help to conduct a market analysis. This identifies your customers, and describes their purchasing needs and habits. The information can help you see if you are likely to make money or lose money before you get started if your business is a start-up company. It will also assist you if you are contemplating introducing a new product or service.

Start-up Funds

If you are just starting your business, you need to determine a realistic and accurate amount of money needed to start it. This includes all equipment appropriate to your business, such as computers, office furniture, manufacturing equipment and communications equipment. If you need to hire a few employees, include that in your start-up costs, as well as basic operating costs. Make sure the funds are sufficient to last you until you have enough projected revenue coming in to cover your expenses.

Allocation of Funds

Your plan needs to detail how much each aspect of the business is going to cost. For example, separate out totals for annual salaries, rent, utilities, insurance and benefits, taxes and so on. Divide these into fixed costs and variable costs so you have an eye toward those costs that might change or be influenced by outside factors, such as economic or political changes.

Financial Statements

Once your business is operating, you need financial statements. This requires accounting and financial expertise. If you don’t have it, seek the advice of an expert, such as a chief financial officer or certified public accountant. Included are a balance sheet, which is a short-term snapshot of financial health; income statement, detailing the profit or loss over a period of time such as a fiscal quarter or year; and a cash flow projection, which balances costs to sales to gauge future profit margins. Financial statements are important as your own checks and balances and also if you seek outside funding, such as a bank or government loan.

Financing Sources

Funding a business at start-up or growth must come from somewhere. If you are not funding it yourself, or if it is not coming from company sales for later-stage growth, for example, chances are you will need to seek outside financing. Outside options include venture capital funds, state and federal programs such as grants and loans, or a private investor. It is important to understand the requirements for each, as well as having a payment plan outlined that is backed up by your financial statements.