Start small: You most likely have high expectations for your company. However, blind optimism may cause you to invest too much money too quickly. At the very beginning, it’s smart to keep an open mind and prepare for issues that may arise later.
Cynthia McCahon, founder and CEO of business plan software company Enloop, said business owners should start with a bit of healthy skepticism..
A prospective business owner should start planning a small business by simply understanding the potential of the business idea,” she said. “What this means is not assuming your idea will be successful.” The best approach is to test your idea in a small, inexpensive way that gives you a good indication of whether customers need your product and how much they’re willing to pay for it, McCahon said. If the test seems successful, then you can start planning your business based on what you learned.

Estimate your costs: While every type of business has its own financing needs, experts have some tips to help you figure out how much cash you’ll require. Serial entrepreneur Drew Gerber – who has started a technology company, a financial planning company and PR firm Wasabi Publicity – estimates that an entrepreneur will need six months’ worth of fixed costs on hand at startup. “Have a plan to cover your expenses in the first month,” he said. “Identify your customers before you open the door so you can have a way to start covering those expenses.” When planning your costs, don’t underestimate the expenses, and remember that they can rise as the business grows, Gerber said. It’s easy to overlook costs when you’re thinking about the big picture, but you should be more precise when planning for your fixed expenses. One of the main reasons most small businesses fail is that they simply run out of cash,” she said. “Writing a business plan without basing your forecasts on reality often leads to an unfortunate, and often unnecessary, business failure. Without the benefit of experience or actual historical financials, it’s easy to overestimate a new company’s revenue and underestimate costs.”

Project your cash flow: Another important aspect of a startup’s financial planning is to project the business’s cash flow. Bill Brigham, director of the New York Small Business Development Center in Albany, advises new business owners to project their cash flows for at least the first three months of the business’s life. He said to add up not only fixed costs but also the estimated costs of goods and best- and worst-case revenues. “If you borrow money, make sure you know not only how much you borrowed but also the interest you owe,” Brigham said. “Calculating these costs puts a floor on the revenues needed to keep the business viable and provides a good picture of the cash necessary to start it up.” This is an essential step in maintaining your business’s financial health. Without being realistic about your cash flow and debt, you won’t be able to get your business off the ground, especially as other costs begin to build.

Figure out your financing methods: Once you’ve determined your costs and projected your cash flow, you’ll need to consider how to pursue financing. How you obtain funds will affect the future of your business for years to come. Personal savings, loans from family and friends, government and bank loans, and government grants are just a few potential funding sources. Many companies use a combination of different sources, most startups are self-funded. However, there are other options.