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Introduction to Business Finance

Starting a business and being one’s own boss is the preferred employment of many. The reason why most don’t ever make it to their desired self-employment is because of one little factor: money. Whether purchasing a business or starting one from scratch, owning a business is expensive. How the potential business owners will raise this capital depends on a few factors.

The importance of a Budget

            The budget of a business is a detailed account of what will be the necessary expenses accumulated to run the business smoothly. Sitting down and calculating every penny that need be spent while running your business will not only help you to curb unnecessary spending and encourage responsible payments but it may also help you raise the finances needed to start your business on a good foot. If you don’t know exactly how much capital will be needed, you may end up short before you even get started.
            Writing out a budget will also help you get a loan from a financial institution. If you have a well prepared budget for your business, not only will you look more responsible, but banks will have the numbers right in front of them. This makes it easier for the banks to come to the decision that financing your business is a good investment on their part. If you present your business as well managed and financially sound, extending you a loan is lower risk for the banks. This results in better rates for you leaving more money at the end of the month to put back into your business. This gives you an even better chance of success.

            In an attempt to draw more customers, most larger banks have a department specifically to help starting business owners prepare a budget and manage their finances. This may be a good place to start if you are unsure of your financial needs and would like a professional to help you figure things out. They usually provide this service free of charge.

Two Types of Expenses

            When you are attempting to start a business, there are two types of expenses that need to be addressed.

One is the start-up cost. This is what you need to get your business up and running. This cost will need to be dealt with first, obviously. You may choose to get a loan depending on how big of a venture you are planning. Some businesses require more start up cost than others. Like we talked about before, having a detailed budget prepared will help you determine very precise start-up cost and may even help you finance it.

The other type of expense is the ongoing expenses needed to keep your business running once you get it started. Examples would be utility bills, payroll, supplies, and advertising. These expenses may be covered by the incoming profits of your business but most businesses have a period where their profits are less than their expenses, at least in the beginning. Some expenses are forgotten when determining this factor. For example many forget about the expense of primary importance being the living expenses of the business owner themselves. No longer will they be getting a paycheck every week. Expenses of these kinds need to be included in your budget.

Profit Makes Perfect

            How finances are handled of a new business is vital to the ongoing existence of this business. Poorly planned financial decisions will use up all of the profits coming in. If this happens, the business will eventually fail. Taking care of the financial side, as well as the service side, of your business will ensure your success in owning a profitable business.                  



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