Acquiring funding for your small business is now a breeze with 30-second online funding applications. However, determining your business’s financing requirements can be challenging. While some small businesses can start with as little as $3,000, capital-heavy businesses can need up to $500,000. So, how can you determine the exact amount you need?
Here are some steps you can take to determine how much funding your business requires.
Examine Your Yearly Balance Sheet
Your business’s financial needs will vary based on factors like the business type, operating cycle, and stage of growth. Businesses with long operating cycles or substantial inventory requirements may require more cash on hand, and their expenses may surpass their revenue in certain months if they depend on seasonal sales.
New or recovering businesses typically require more capital than established ones that are looking to expand. It’s essential to calculate your business’s financing requirements over a year instead of a single month.
Funding Needs for Startups
Accurately forecasting your expenses and income over the coming months is critical in determining the appropriate capital for your business. Around 20% of new businesses close within their first year, so obtaining steady funding that provides you with the time to focus on growing your business is critical, such as training staff and securing a loyal customer base.
One-Time Costs
The Small Business Administration estimates that most small businesses incur between $2,000 and $5,000 in one-time starting costs, which are above the normal operating costs. These costs can include incorporation fees, office furniture or equipment, purchasing premises, or designing a website. Your business may require extra funding to cover these expenses.
Ongoing Costs
Creating detailed financial projections is essential in borrowing the correct amount of money for your business. For established businesses, this can be achieved by analyzing past financials, while new businesses don’t have that luxury.
Funding Needs for Existing Businesses
Existing businesses require additional financing to weather unexpected crises, expand their businesses, or handle additional expenses.
Growth or Recovery?
Determining the amount you need depends on your business’s phase. Financing an expansion or other investment requires a financial projection like those used by startups, and you should have a plan for when the expansion will result in added revenue.
You can also obtain financing for ongoing operations to help your business recover from a setback. In addition, you should plan to increase your cash on hand to cover smaller unforeseen expenses.
Businesses Financial History
For existing businesses, basing future financial goals on past experiences is critical. Plan future expenses based on past ones to avoid underestimating the required financing.
Final Thoughts
Proper planning is crucial for your business’s financial future. Having a clear idea of your business’s financing requirements over an annual business cycle will help you determine the appropriate amount of financing you need.
When it comes to accessing business funding from Vital Funding Solutions, we take the guessing work out of determining how much funding your business needs. Give us a call to discuss your businesses unique financial situation with one of our experienced advisors.