If you are looking to start a business, one of the first things to think about is finances. The amount of money you need to start your business depends on many factors including your business idea, goals, and structure. The best way to ensure you have enough funds to start and sustain your business is to meticulously plan your finances and start saving early.
Here are the steps you can take to start saving up for your business:
9 steps to saving money for your business
Determine your business model: The business model is the profit-making plan with details on the services or products you plan to sell, the identified target market, budget, and operating expenses. Business models help provide the framework for recruiting talent, securing the required funding, developing the business structure and marketing plan.
Estimate costs: Estimating the initial investment you need and the operating costs is key to start saving up for your business. Your business plan highlights your financial goals in terms of how much money you wish to make and the steps to take to achieve the goals. The amount of money you need to start your business and sustain it will vary depending on the industry, size, and nature of the business. To get a rough estimate of how much money you need upfront, make a list of the one-off investments for your start-up that have a fixed cost:
- Purchase or lease of land or buildings/office
- Licenses and permits
- Office furniture and supplies
- Shop fittings
- Website, domain name
- Intellectual property (IP) registration
You will also have to account for ongoing expenses such as utilities, salaries, mortgage payments/rent, and public liability insurance. Factor in variable expenses such as raw materials, stock orders, and other overheads. This will give you an idea of how much you need to save.
Evaluate your spending habit: Studies show that one out of three (1.4 million) Kiwis have no rainy day fund while the savings of 15 percent last for only a week. According to Statistics New Zealand, Kiwis spent $9.5 billion on consumables, hospitality, vehicles, and clothing. Look at your bank statement to know how you spend your money, where wastage occurs, and what items are truly essential.
Get rid of debt: Whether it’s credit card debt, car debt, or a mortgage, debt payments can drain your bank account each month. Cut down on your spending and save up more to ensure you pay off your debts.
Create a savings account: To remove the temptation and minimize the visibility, transfer your money to a dedicated account and avoid getting a debit card to curb impulse spending.
Save your raise. Aim to save up a fixed portion of your salary each month and save up any salary increase you receive. Arrange for the increase to the account dedicated to your business. Similarly, any tax return you receive from IRD should go into your business savings account.
Borrow from friends or family: Friends and family members who know you well are likely to be interested in investing in your business. However, ensure you manage the finances professionally by documenting the loan terms, equity stakes and other details.
Explore options to minimize the investment you need: In the digital age, technology can be leveraged in many ways to minimize time and costs. For instance, you can launch an online business instead of purchasing land or office space if the nature of your business allows the arrangement. Launch your business from your home and use social media, emails, and blogs to connect to your customers. Instead of hiring full-time employees, outsource non-core administrative tasks to specialized firms. Using open-source software shared cloud storage, and used equipment are other ways to save money for your startup.
Explore funding options: The other options you can explore are bank loans and business credit cards. Banks will require proof that you can repay the borrowed amount. Applying for a personal loan or borrowing on your mortgage are options you can consider. Once your business stabilizes, you will have more funding options available. Business credit cards are useful for making smaller purchases. Whether you opt for bank loans or business credit cards, it is important to compare the interest rates, finance charges, repayment terms, and perks of different providers. While your business credit card need not be from the same bank that you use for personal finances, banks are inclined to provide better offers to customers they know well and trust.
New Zealand being a startup-friendly country, you can find multiple government-backed and private funding options for early-stage startups. Flexi-wage and Self-employment Startup funds by WINZ, Callaghan Innovation’s Getting Started Grants, Project Grants, and Rātā Foundation’s grants are some private funding options. Angel investors and venture capitalists are groups or high net-worth individuals who invest in ambitious businesses. Entrepreneurs can benefit from the skills, experience, networks, and knowledge that these investors bring in. Crowdsourcing is a type of fundraising where you create a campaign online, describe your business idea, and set a target for funds. This is one of the popular ways to raise funds for startups.
The earlier you start saving, the better prepared you will be to launch your business. Start small and explore multiple ways to cut down on spending, earn more money, and secure funding.
Also Read: How to find best Online Colleges.
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