Open a business bank account
Keep your business and personal finances separate. Learn how to choose a business checking account and why it's important to have a separate business account. When you open a business bank account, you'll need to provide your company name and business number (BN) or DBA (if you're a sole proprietor and don't have a number). You can use this business bank account for business transactions, such as paying suppliers and invoicing customers. In most cases, banks require a separate business bank account to issue business loans or lines of credit.
Hire a bookkeeper or get accounting software
If you sell products, your accounting software needs inventory functionality to manage and track your inventory. The software needs ledger and journal entries, as well as the ability to generate financial statements.
Some software programs also double as bookkeeping tools. These programs often include features such as writing checks and managing accounts receivable and payable. You can also use the software to track income and expenses, create invoices, run reports, calculate taxes, and more.
There are many bookkeeping services out there that will do all of this and more for you. These services can be accessed online from any computer or mobile device and often include features like bank reconciliation and invoicing. Check out accounting software for small businesses, or consider whether you can handle your bookkeeping yourself.
Determine the break-even point
Before you can raise funds for your business, you need to know how much it will cost to start up. To determine costs, make a list of all the supplies you'll need, estimate the cost of any professional services you'll need, determine the price of any licenses or permits you'll need to operate your business, and calculate the cost of office space and other real estate. Add in the cost of payroll and benefits, if applicable.
Because it can take years for a business to become profitable, it's better to overestimate the costs of starting up and have too much capital than too little. Most experts recommend having enough cash on hand to cover six months' worth of operating expenses.
Once you know how much you need to start your business, you need to know the point at which your business will start making a profit. This number is your breakeven point.
Break-even point = fixed costs ÷ contribution margin
in contrast, Contribution Margin = Total Sales – Cost of Manufacturing Product
For example, let's say you're starting a small business selling miniature birdhouses for fairy gardens. You've determined that your start-up costs will be $500. Your variable costs are $0.40 per birdhouse you make, and your selling price is $1.50 per unit.
Let's write it out so it's easier to understand:
This means you'll need to sell at least 456 units to recoup your costs. If you can sell more than 456 units in the first month, you'll be profitable.
