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Starting a business

Understanding the financial needs of your new business

Starting a new business is an exciting journey, but the path to achieving your dream can be as daunting as it is rewarding. 


One of the most important aspects is sorting out your start-up finances. Whilst it can be hard to project costs and income for a business that doesn’t yet exist, doing so may be the difference between staying afloat and going under.


Read on to learn the key financial considerations for your first year in operation and how to fund your new business.

Calculate your start-up costs

Your start-up costs are the one-off costs for essentials as you get your business off the ground. These will vary depending on the type of business you’re starting. For a trades business, you may have a significant outlay for tools, equipment and a vehicle. If you’re starting an ecommerce business, you might need to purchase or produce stock upfront. 

For more information we have outlined some of the essential and unnecessary start-up costs.

Calculate your running costs

These are the regular monthly costs you will incur while running your business, such as; rent, subscriptions, insurance, utilities, as well as your direct input costs such as; raw materials, stock, and wages. Calculate your running costs for the first twelve months. It’s a good idea to be able to cover at least the first 6 months up front, as it might take time to build up your revenue.

Estimate your income

Like with your costs, your revenue projections will vary depending on a number of factors, like your industry or whether your business sells products, offers services or both. Project income for your first twelve months in business, making sure to include a ramp up period.


This is also a good time to consider your pricing strategy and to calculate your break-even point—the point where your forecasted revenue equals your estimated total costs.

Consider the worst case scenario

Try to be as realistic as possible when calculating your costs and income. Take the time to research thoroughly and think of every possible expense. Once you’ve thought of everything, consider adding a 10% buffer on top of your costs and reducing 10% from your income, just in case.

If you’re not sure if you’re on the right path, consider speaking with a mentor in your industry or engage an accountant for help. 

Once you’ve settled on your costs and income, you’ll have a good idea of your finance requirements and can start considering…

Funding your new business

Getting funding was a top priority for nearly 1 in 3 new business owners in our survey. Read on for an overview of some of the top funding options for consideration.

Ways to fund your startup costs infographic

Personal savings

One of the best ways to fund your business is with your own capital. Using your savings can seem daunting, but there are some advantages to consider:

  • You own your business outright
  • You don’t have to give away ownership
  • You eliminate the hassle of acquiring debt
  • There’s no need to bring in additional partners

Business loans

It can be difficult to get a small business loan if you’re just starting out. But check with your bank on your options. You will need a lot of documentation and a detailed business plan. It's also important to carefully read the repayment policy of the loan before applying for it and include that in your financial projections. Learn more about small business loans.

Grants

Depending on your location, you may be eligible for grants, either from the government or private organisations. The business.gov.au Grants and Programs finder is a great place to start when looking for grants you may be eligible for. 

Have a look at our guide, highlighting some of the small business grants available to businesses from both Commonwealth and State governments.

Friends and family

Funding a business from friends and family is a common source of finance to help you get your business off the ground. After all, who has more faith in you and your abilities? But be wary of relying on handshake deals and verbal agreements, or you may risk strained relationships if things go badly.

Treat it like any business deal. Make sure you know the terms and conditions. Is the money a gift you don’t have to repay? Is it a loan? If so, what is the time frame for repaying? Is it an investment, and if so, what percentage of the company does your funder own, how much say do they expect to have in operations and how soon are they expecting the investment to pay off?

All of this should be discussed, agreed on and documented, the same way you would with any other lender or investor. If would-be friendly funders aren't willing to engage in that kind of process with you, perhaps it is not a good idea to look to them as a funding source.

This information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.


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