Whether you're tired of a corporate environment, eager to launch an innovative business venture, or ready to be your own boss, you may find the benefits of independent consultancy to be attractive. However, launching a successful consulting business requires both finances and a solid business plan. We've compiled four tips to help you figure out how much money you need to start a business.
1. Give Yourself a Start-Up Cushion
Don't be surprised if your first few months of financial reports show far more output than income. Even if you land your first client immediately, it could take 30 days before you invoice, with net payment terms often as long as 60 days. That means 90 days before money starts coming in. Prepare yourself for this by including enough start-up capital to keep your business running for approximately six months without income. Remember that building up client relationships and credibility can be worth more than quick cash.
2. Prepare for contingencies
In running your own business, always expect the unexpected. While it's important to remain optimistic and confident about your business, it's also safe to assume that there will be instances when your revenue is unexpectedly cut or delayed. It may be due to clients being unable (or unwilling) to pay their bills, the emergency replacement of broken technology, or simply an unexpected lull in new clients or projects. To account for this, maintain at least six months' worth of expenses in a savings account - your "rainy day" fund.
3. Factor in Start-Up Investments
Your operating costs will include repeated, constant expenses, such as utility and Internet charges, project supplies, and subscription-based fees. However, in addition to the monthly and annual costs in your budget, there will likely be a number of initial purchases to consider. Such purchases could include office technology such as a computer, printer, scanner, or fax machine, as well as software or office furniture - items that you are responsible for now that you are self-employed. These initial investments may be a one-time expenditure, but they add up quickly, so make them a part of your budget considerations.
4. Prioritize Your Initial Expenditures
Remember, when starting out, your focus should be on landing your first client. There will be plenty of opportunities to expand your budget as your needs grow and you revisit and reevaluate your goals. When preparing your initial financial budget and business plan, it's important to remember that some expenses can wait until your business is more established. For example, the significant expenses involved with renting office space can be delayed or even permanently eliminated by initially working out of a home office or joining a coworking facility. Likewise, marketing expenses can be put off in your early planning stages and reconsidered as your business develops.
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