Added to the potential small business owner's readiness checklist of having the right personal qualities, characteristics, and knowledge of the business, it is also necessary to identify his or her financial position in the pre-start up phase.
A financial statement is a necessary part of the business plan. Besides, it will also be required by a potential financier or a lending bank once the potential business owner decides to get a small business loan in the advent of the small business start-up.
Potential Small Business Owner’s Worth
The worth statement indicates the basis of valuation such as cost and market value. A financial statement of assets (what is owned) and liabilities (what is owed) is prepared. If necessary, a financial advisor is made available for consultation. Below is a basic entry of a financial statement.
Assets (What is Owned)
- Cash at bank/s
- Real Estate – house and land
- Household furniture and effects
- Motor vehicle(s)
- Boat
- Insurance policies (surrender value)
- Shares
- Other Assets
Liabilities (What is Owed)
- Mortgage – house and land
- Loan - car
- Loan - personal
- Credit card(s)
- Other (such as current unpaid bills)
Assets minus liabilities equals the personal worth of the potential small business owner. The end result, if favourable, is sufficient net assets to provide reasonable equity and support especially if he or she decides to apply for a small business loan.
Potential Small Business Owner’s Needs
This section is a budget schedule, prepared for a particular period, with monthly outgoings. Some monthly outgoings are calculated as percentage of annual payment. Below is an basic example of a budget schedule which can vary from person to person.
- House (such as rent, mortgage repayment, council rates, water rates, insurance, etc)
- Domestic (such as food, clothing, holidays, entertainment, sundry, electricity, telephone, etc)
- Education (such as school fees, books, etc)
- Medical and Hospital
- Motor Vehicle (such as insurance, licence and registration, repairs and maintenance, petrol, loan repayments, etc)
- Life Assurance
- Income Tax
- Subscriptions
- Personal Loans
- Other
The above is a simplistic way of identifying essential needs and overall picture that a potential small business owner has to primarily look into. Before getting started with the start-up, it is essential to prepare a business plan which, in effect, will cover the financial position. If properly laid out, it should identify the areas of strength and weakness of the business idea initially conceived, but will help in deciding if the planned small business is viable or not.
It is a great challenge to own a new business; however, it can also be rewarding. A lot depends on the potential small business owner’s abilities, resources, capacity for work, commitment, and properly laid out business plan.
Related articles:
Business Planning is Important to Small Business
Why Small Businesses Fail and Trends in Small Business
Small Business Owners Coping with Isolation and Loneliness
Barriers in Starting a Small Business.
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