How To Know How Much Money Will Be Needed To Finance Your Startup In Nigeria

How To Know How Much Money Will Be Needed To Finance Your Startup In Nigeria

There is nothing as interesting as starting a new business. It pumps adrenaline and makes you achieve if you are entrepreneurial minded. It is also important to know that if you want to start your own business, you will have to put up with some variables. The most important variable is to know how much money will be needed to finance your startup.

More so, if I want to start my own business, I will need to put in time and dedication to it. These factors and money will enable your ingenuity to express itself.

Related: 5 interesting reasons money should not be an obstacle to starting a business in Nigeria

When you want to start a business, there are questions you will need to answer; how much money does it cost to start a small business? How much capital is needed the first year of a new business to be successful? What business to start? Etc.

When you know how much money will be needed to finance your startup, you will be halfway through solving your startup problems.

We will be sharing tips on things that will enable you to know how much money will be needed to finance your startup.

 

Tips On How To Know How Much Money Will Be Needed To Finance Your Startup

know how much money will be needed to finance your startup

  1. You need to start small

A There is no doubt that you have high expectations for your company. It is, in fact, a crime if you don’t. However, to know how much money will be needed to finance your startup, you will need to understand the place of starting small.

When you are too optimistic, you might fall victim to investing too much money too quickly without the possibility of appropriate returns. You will need a bit of healthy skepticism.

Cynthia McCahon who founded Enloop is of the opinion that “A prospective business owner should start planning a small business by simply understanding the potential of the business idea. What this means is not assuming your idea will be successful.”

The above prepares you for challenges and obstacles that will likely arise.

  1. Run an estimate of your costs

When you want to start a business online or offline or you are confused on how much money a startup actually need, you can make a business startup list using other means or a starting cost calculator.

Every business has its unique needs and the needs of a business can determine the cost. Below are some tips from experts on how to know how much money will be needed to finance your startup;

According to Drew Gerber, “Have a plan to cover your expenses in the first month. 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, 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”

According to McCahon, “Indeed, underestimating costs can decimate your company, One of the main reasons most small businesses fail is that they simply run out of cash, 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.”

  1. Understand what types of costs you’ll have

    know how much money will be needed to finance your startup

There are various types of expenditure to put into consideration when you want to know how much money will be needed to finance your startup. Below are some of the costs you will consider when starting your business according to Eyal Shinar, CEO of  Fundbox;

  1. One-time vs. ongoing costs: 

    One-time expenses will be relevant mostly in the startup process, such as the expenses for incorporating a company. If there’s a month when you must make a one-time equipment purchase, your money going out will likely be greater than the money coming in. This means your cash flow will be disrupted that month, and you will need to make up for it the following month. Ongoing costs, by contrast, are paid on a regular basis and include expenses such as utilities. These generally do not fluctuate as much from month to month.

 

  1. Essential vs. optional costs: 

    Essential costs are expenses that are absolutely necessary for the company’s growth and development. Optional purchases should be made only if the budget allows. “If you have an optional and nonurgent cost, it may be best to wait until you have enough cash reserves for that purchase,” Shinar said.

  2. Fixed vs. variable costs: 

    Fixed expenses, such as rent, are consistent from month to month, whereas variable expenses depend on the direct sale of products or services. Shinar noted that fixed costs may eat up a high percentage of revenue in the early days, but as you scale up, their relative burden becomes negligible.

  3. Project your cash flow

You will need to project your cash flow if you will know how much money will be needed to finance your startup. It is a very important aspect every startup’s financial planning.

You need to how much you are borrowing and the interest it will accumulate when you are calculating your cash flow.

If you can start a business without borrowing, it is seen as the best option but you can still borrow and use it wisely. Borrow only what you need so as not to get entangled with unnecessary expenditure because you feel you can afford it.

According to Brigham, “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.”

  1. Figure out your financing methods

After settling your cost and cash flow projections, you will attack financing with renewed vigor. The truth is that this moment has a lot of implication on the future of your business. You can use personal savings, loans from family and friends, bank and government loans, and grants.

According to Herndon Davis, “most startups are self-funded. However, there are other options.

Additional funding can come through establishing business credit and different lines of credit through piggybacking scenarios, There’s also small business loans and angel investors willing to step in at certain stages. At this point, your startup should show established client/customers, growth since inception, a unique positioning in the marketplace, and a clear business plan on how to grow with the additional funding.”

 

 

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