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How much cash do you need for your new venture?
Hi, this is Judi Otton with GrowthCast and I got this question just this morning. So this is for you Kathy and anybody else that’s launching a new venture, whether it’s a new business or a new offering within your business.
First of all, you need to split up start-up costs and ongoing costs. You may need equipment, remodeling, initial supplies to start up, and then ongoing, you’re going to have rent, utilities, labor, all the usual things. So split those apart. Think about how you’re going to purchase your startup equipment and materials. Will you purchase it outright? Are you going to finance it? Are you going to lease some big equipment? And if it is a long-term payment, lay that out in your monthly, cash flow needs.
Second split out your must-have, like to have, and nice to have, because I can promise you, you’re not going to have enough money to buy everything you want and if you start with the nice to have stuff, you’re not going to have the funds to buy the must-have stuff. So make sure you prioritize everything. When you’re trying to figure out things like cost of goods and profit margins, if you have a similar venture, definitely start there, you may be able to find some info on the internet about profit margins and things like that. But yeah, look for a similar venture, but keep in mind, if you’re producing and selling smaller quantities, your cost of goods is likely to be higher.
On staff, people always want to hire their full team right away. Don’t do that. The budget template that I use and you can get that right here (bit.ly/3Rq7Cuc) has a separate page for staff so you can have them starting at different times. There are places to add increases. Don’t forget taxes and benefits when thinking about your staff.
For the first year, I would go month by month. What are you going to need for cash out? What do you expect to take in? After the first year, you may want to go quarter by quarter, and don’t forget things like insurance, I. T., legal and financial support.
Finally, be conservative. Overestimate your costs, and underestimate your sales so that you’re sure that you have enough funds to get to the point where you’re self-sustaining.
This is Judi Otton with GrowthCast and I’ll be back next week with another Fiscal Fitness Tip of the Week.
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