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Kickstarting Your Startup - Business Start-Up Cost Planning

At CapRock Services we understand that starting a business is no simple feat. There are many driven people who want to start their own business and be their own boss. However, before chasing this dream it is important to understand the financial costs involved with doing so.  Here is a brief overview of how to properly calculate startup costs when opening a business.

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Understanding Business Start Up Costs

The first step in understanding business startup costs is to plan carefully before spending anything. One key reason many startups fail is due to bad accounting practices and underestimating expenses. By not taking the small details into consideration expenses soon overtake seed funding and revenue. While all businesses differ there are common expenses that all share, which are as, follows:

1.     Research: No one should enter any industry without studying the current market conditions or existing customer base. Such research takes time, money and may involve outside professionals.

2.     Licensing and Insurance: No matter what the business type, professional licensing with state and local government is a requirement; this may be basic or specified depending on industry. Insurance needs vary based on business structure, number of employees, physical locations and business structure.

3.     Supplies: All businesses need a careful review of needed supplies and equipment. Equipment can become an expensive proposition, as can the decision between buying and leasing.

4.     Promotional Costs: A new business needs to advertise itself to gain customers and a share of the marketplace. Promotion is quite involved and numerous 3rd party marketing companies provide this invaluable service.  

5.     Financing/Business Loans: Many new businesses require business loans of some sort to provide operating capital while the business establishes itself. These can take the form of debt financing, equity financing and crowd financing. No matter what the source, such financing needs to be carefully recorded.  

6.     Employee Pay: Unless a business is a sole proprietorship, there will be expenses for employee pay (hourly or salary) and benefits.

7.     Information Technology: In the modern business world, computers, software, websites, online sales and social media are all essential parts of success, but come at a cost. Many companies also outsource certain aspects of their IT needs.

How Much Do I Need To Start A Business?

After carefully reviewing the above list, the next step is to use this information to calculate a realistic starting expense. First, some expenses are one-time only costs such as incorporation fees, while others such as equipment rental are part of the ongoing costs of doing business. Also, while some expenses are static (i.e. rent contracts) others such as inventory needs, can vary depending on outside factors and marketplace externalities.

Second, the money needed to start a business should only be for the essential elements required to get it off the ground. Optional business elements can be added later as a business grows. Lastly, any calculations should be budgeted for several months and not just during the opening period. A business is a long-term investment and plans should reflect this.   

Conclusion

As the above shows, financing a startup requires very precise planning and calculations. At CapRock Services, we assist small business owners by acquiring the funds they need to grow their businesses and help achieve success. We offer several different types of business loans and can also offer guidance on newer methods of fund acquisition such as crowd source funding. Contact us today to learn more about the products and services we offer.

Crowd Funding vs Venture Capitalism - What’s the Difference?

At CapRock Services we provide a multitude of services. One area in particular where we excel is in helping businesses get the money they need in the form of small business loans. These loans can be used to assist in business growth or needed expenses without a loss of ownership or control.

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Other types of business investments include venture capitalist companies and angel investors who invest in businesses both large and small. However, crowd source funding has become a very popular alternative in recent years. Crowdfunding is now being used by businesses to fund product creation. Each type has their pros and cons. Here is a brief overview of both and how the two compare.      

Venture Capitalism

·       Pros: Finding angel investors allow companies to get funding through a traditional loan process. A key advantage is the experience venture firms offer. They can help guide smaller companies through growth periods by providing expertise in things such as taxes, finances and HR. Gaining access to resources such as these not only increase chances of success they can also increase overall growth. Also, venture and angel investors often have ties to the greater business community and such connections can greatly assist an expanding business.

·       Cons: When using a venture capitalist company or an angel investor, both are going to want to see a return on that investment. Also, both are risk aversive and will take a great deal of time to review a company before investing. For some businesses they just can’t wait that long. Lastly, venture companies many want partial ownership or controlling interest in a company, especially in their investment is a large one.

Crowd Funding

·       Pros: Startup crowd funding offers several advantages. Crowdfunding for business-based loans is highly flexible and scalable to a business’s needs. Also, due to drawing funds from a wide pool of investors, there will be several different revenue sources to come together to meet investment goals. Crowdfunded loans can scale in a way that traditional business loans cannot.  

·       Cons: When using crowd financing there are some drawbacks. Firstly, crowd-funding loans are unsecured, making for a more expensive loan via higher interest rates than a traditional loan. It is common for interest rates to be double the rate of a traditional small business loan. For example, the traditional loan could have an interest rate of 6 percent versus a crowd sourced loan having a rate of 15 percent. Also, crowdfunding pays out dividends based on yearly earnings, which can affect profit margins more than other types of investments that have more predictable payment plans.   

How The Two Compare

When a business is looking for seed funding to grow their company, it is important to be well informed on what their loan options are. As the above shows, venture capitalism and crowdfunding both offer advantages to businesses as well as having their own drawbacks to keep in mind. At CapRock Services we help make these important decisions everyday and provide the services and knowledge small businesses need to succeed. Contact us today to learn more.

Investing in Your Company: How Much Should You Spend? How Much Should You Save?

Building a new business can be a daunting process in its own right, and that's even before you consider taking on your own budgeting and bookkeeping. Today, more than 80% of small businesses are unable to claim a profit because so much of their money is spent "re-investing" or paying off debt from previous capital investments. This system has proven ineffective and often leads business owners to become disheartened or to sell their companies before they ever really get off the ground. 

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Creating a Spreadsheet

Budgeting and forecasting are extremely difficult in the first couple years of business ownership. You likely do not have the information available to clearly forecast and determine the spending and investing costs.

The first thing you should do is create a spreadsheet that details all of your current operating expenses and your current incomes. You can also take the time to research other businesses in your industry and use them as case studies to figure out what you can expect.

Your spreadsheet will be the best way to check in on your small business budget plan month-to-month and make the necessary adjustments. 

Separate Accounts

Regardless of what industry you are in, the best practice for successful savings and spending is to maintain multiple accounts.

For instance, if you have $1000 a month coming in and you plan on investing $2000 in new pizza ovens in the near future you still need to keep up with operating costs and try to avoid debt.

Assume that you are taking a 30% cut as the owner from the beginning. This leaves you $700/month for investing. Based on your spreadsheet you should be able to see your current operating costs at $500/month. That money can go into your spending account and the remaining $200 can go into a savings account for later investment.

By limiting yourself to $500 in the spending account, you will be forced to stick to your budget without going over and you will often find ways to reduce costs to stay under that number.

By putting the $200 away in savings for later investment, you can avoid picking up new debt, and you can add to the savings anytime your business performs better than expected to reach your goal faster. 

Review Frequently

You should be holding regular business budget planning sessions to review your spreadsheet and track your progress. While the actual ratio of savings to investing varies from one industry to  the next, the reality is that writing everything down in a spreadsheet that you can compare to previous months, and holding yourself to a strict spending limit gives you a better ability to grow.

If you keep all of your money in a single account you are more likely to overspend just because the money is available and you will never learn to invest without debt. As your business grows you can adjust your percentages and allot money accordingly. 

The ultimate goal is to ensure that the owner of the business is getting fairly compensated first, and then keep your spending and savings under tight control.

The more money you allow your business to have, the more it will willingly take. It is up to you to set limits and move money out of the way so that it cannot be spent. Large investments can be saved for, and monthly costs can be reduced just by choosing to set a limit up front.

CapRock Services

At CapRock Services, we are proud to provide business solutions to thousands of merchants across the country. Please contact us for more information.

Small Business Rigamarole: Why Pinching Pennies, Doesn't Always Make Cents

When it comes to reinvesting in your company, CapRock Services specializes in providing capital to unique business ideas that have a strong chance for success. With a simple application and a bit of background information about your business and your goals, we can determine how to best assist you with achieving the growth you wish to see. 

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Spend Money to Make Money

For years, the idea that you must spend money to make money has been the mantra of entrepreneurs. It has also been one of the biggest reasons that some people fail to act on their business aspirations, because they believe that they do not currently have the money it takes to get started.

The reality is that you can usually get your business off the ground with minimal capital investment on your part by finding a great partner who can provide you with funding, but who can also guide you to success based on their experience within your industry or with startups in general. CapRock Services is just one example of funding that is available to business owners who want to make that first big step. 

How Much to Invest

The amount that you are able to invest in your business will ultimately depend on how much funding you can secure. CapRock Services uses EBITA among other numbers to determine the viability of your business model before making a qualifying decision.

EBITA stands for Earnings Before Interest, Taxes and Amortization. Your monthly income statements will indicate your earnings before taxes. From there you can add in taxes and amortization to reach a final number.

This is basically your business's cash flow under normal operating conditions. If you have strong cash flow, your business shows good promise for long-term profitability with regular reinvestments. This is a good sign for investors and lenders who want to offer you money to make those expansions. 

Why Reinvest?

Reinvesting in your business allows you to grow in a number of ways. It is not limited to just purchasing a bigger building. Reinvestment can simply mean hiring the correct bookkeepers to handle your finances. Reinvestment can mean paying off old debt from your initial launch. Reinvestment can mean putting a ton of energy into marketing and reaching new customers.

Regardless of what form it takes, reinvestment is the only way for you to grow month after month. Failure to reinvest in your business will ultimately lead to stagnation and inability to grow altogether, which is why it doesn't make sense to store all of your money up in savings or to pocket all of your profits for personal spending.

If you plan ahead and make regular investments in your company, and you learn which investments earn the highest returns, you can easily start seeing results in just a few months.

CapRock Services

At each major milestone your business reaches, the base operating costs will increase incrementally. To stay above water, it is imperative that you are investing in people, technology and infrastructure that will support the weight of those operating expenses over time. By building stability into your business model you will have more freedom to reach customers, make more sales, and drive profits.

For more information, please contact CapRock Services.  We are proud to provide business solutions to thousands of customers across the United States.

Quarterly Sales Data & Inventory: Order What You're Going to Sell

At CapRock Services, we assist all our clients in optimizing their businesses. When running a small operation there is little room for error, and efficiency is absolutely critical. Optimization of inventory and supply chains allows a small business to be nimble and maximize sales, while keeping excess spending low.

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Streamlining Inventory

Sales data serves several useful functions. First among these is inventory optimization. By reviewing sales information, small business owners can customize their inventory to meet customer demand. By doing so, they remove unneeded under-performing products and keep products with a high sales ratio in stock.

Unpopular products are ones that cause added expenses by taking up shelf space that could be used by higher-performing goods. They also often end up on clearance for far less than their initial investment causing them to sell at a loss.

With a streamlined inventory, a small business owner maximizes sales, reduces losses on unneeded stock, and increases profit margins by being able to meet customer demand.     

Inventory Planning/Forecasting

When reviewing sales data, along with making sure the current supply chain planning is meeting current customer demands, there must also be planning for future demands.

Demand planning not only keeps a business engaged with their customers but also allows them to predict future hot sellers based on current sales trends. By being prepared in advance for increasing demand, a business avoids product shortages that affect overall quarter and yearly profits.    

Proper Forecasting Techniques

There are several different techniques for forecasting future sales. Two of the most common are Quantitative Forecasting and Qualitative Forecasting. They differ by what aspect of sales data they focus on.

·       Quantitative Forecasting: is mathematical and looks at past sales data and trends. It can look at quarterly data sets to review current trends or decades worth of information to create a detailed picture of the consumer market and how it has changed. Quantitative data is very useful because it presents hard data of current customer behavior concerning what’s selling and what's not selling. However, its inherent flaw is that it is entirely data driven and cannot predict random occurrences such as seasonality or a new trend. People (and, by extension, the market) can be unpredictable at times.     

·       Qualitative Forecasting: focuses on the human element of sales. Unlike quantitative forecasting, qualitative forecasting focuses on probability. These factors include reviewing market data to predict market changes and future consumer trends. While less concrete in terms of data, in the hands of a business owner who truly understands their customers, qualitative forecasting can be a powerful tool.   

Inventory Management

Inventory management is commonly done by one of two methods of review, largely depending on how quickly inventory moves. These are continuous review or periodic review.   

·       Continuous Review: is best used in businesses with fast moving or popular products. This method of review is ongoing and stock is replenished when it drops below a certain inventory threshold. This avoids product shortages or running out of stock.  

·       Periodic Review: is based on set review periods and stock is ordered at this time when overall inventory is reviewed. For businesses with slower moving products and the capital to carry large amounts of stock, a periodic review is a very useful method once the supply chain has been optimized.

CapRock Services

When running a business, demand planning can be very complex. Keeping the proper amount of stock on hand and avoiding shortages of in-demand items is a key part of success. At CapRock Services, we can help you optimize your business to do just that. Please contact us today for more information.