Open a business bank account
Keep your business and personal finances separate. Here's how to choose a business checking account and why it's important to separate your business accounts. When opening a business bank account, you will need to enter your business name and business number (BN), or your DBA if you are a sole proprietor without a DBA. This business bank account can be used 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, you need inventory functionality in your accounting software to manage and track your inventory. The software must have the ability to enter ledgers and journals and generate financial statements.
Some software programs also function as bookkeeping tools. These often include functions such as issuing checks and managing accounts receivable and payable. You can also use this software to track your income and expenses, create invoices, generate reports, and calculate taxes.
There are many bookkeeping services that can do all of this for you. These services can be accessed online from any computer or mobile device and often include features such as bank reconciliation and invoicing. Check out accounting software for small businesses or see if you want to handle the bookkeeping yourself.
Determine the break-even point
Before funding your business, you need to know your initial costs. These decisions include making a list of the physical equipment needed, estimating the cost of any necessary professional services, determining the price of any licenses or permits needed to operate, and calculating the cost of office space and other real estate. To do. Add salary and benefit costs, if applicable.
It can take years for a business to become profitable, so it's better to have too much money than too little money by overestimating your initial costs. Many experts recommend having enough cash on hand to cover six months' worth of operating expenses.
Once you know how much you need to start a business, you need to know the point at which your business becomes profitable. This number will be your break-even point.
Break-even point = Fixed costs ÷ Contribution margin
in contrast, Contribution Margin = Total Sales Revenue – Cost of Manufacturing the Product
For example, let's say you start a small business selling miniature birdhouses for fairy gardens. You determine that the initial cost is $500. Variable costs are $0.40 per hive manufactured and sold for $1.50 each.
Let's write these out to make it easier to understand.
That means you need to sell at least 456 units to cover your costs. If he can sell at least 456 units in the first month, he will make a profit.