Finance - Money you Need



Step 2 - LIVING COSTS

Find amount required for your living costs

What are your Personal Living Expenses?
The other thing you need to do is work out what you can live on. This will include day to day expenses of your home including food, power, rent or mortgage etc. You also need to set out other costs such as education, transport, clothing and entertainment etc.

The total of your personal and family financial needs will clearly set out what weekly or monthly income is needed for you to be able to live comfortably without having to call initially on the cash reserves of the business.

In due course you will be drawing income from the business but unless there is an existing cash flow or one that can be created very quickly it is best to plan on not dipping into the funds of the business for the first few months.

It is best to plan for personal and financial needs from existing capital so there is no pressure on the business to meet this extra cost.

This means that if your spare funds are not enough to provide for your personal and financial needs then in the first few months of running your business (until the business is able to provide you with an income) then you should think twice about going into business just yet.

This does not mean that you should not go into business but the timing of when to start up should be determined by the amount of capital that you have available for yourselves to live on for at least the first 6 months and the surplus that can be used by the business to meet its costs during that time.


Your Business will take a while to Generate Income
Before putting all your available cash into your business, make sure you have sufficient reserves to carry on living and providing for your family. You should also have sufficient to meet the running costs of the business. That is, enough working capital.

Most businesses will take at least a year or more to arrive at a position where it can meet its own requirements and most are not profitable until 1-2 years has expired. This does not mean that your business will not be generating any income prior to that; it just means that you expenses may outweigh your income for a while.

If your business is not showing progress where the revenue is building up and contributing towards the operating costs of the business, within the first six to twelve months, you may need to reassess your whole situation.

If this applies to you get to an accountant urgently and go through everything together because you may need to put in place a rescue plan.

A good idea for some people is to start the business on a part time basis while retaining a full time job. This will allow you to phase into the business gradually while a steady income is coming in. Whatever you do, plan for a cash reserve fund on the side to meet your living costs as well as the expected and unexpected expenses of the business.

In your calculations always provide for the worst scenario – just in case.

Calculate – Your Funds for Living Costs

You Own

$

You Owe

$

Cash and Bank Accounts

$

Current Bills

$

House and Furniture

$

Bank Overdraft & Loans

$

Land & Buildings

$

Mortgages

$

Vehicles & Boats

$

Hire Purchase

$

Investments (Property, Shares etc)

$

Vehicles Loans

 

Business

$

 Other Loans

 

Other Assets – Insurance Value etc

 

 Other Debts & Liabilities

 

TOTAL OWN

$

TOTAL OWE

$

       

You Own

$

(Less) You Owe

$

(Equals) Your Net Worth

$