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Five financial considerations for startups

Five financial considerations for startups

Starting and running a new business is a financially complex undertaking. Here, Insured for Life business owner and Resilium Adviser Matt Jarrott shares his thoughts on starting a new venture, funding it, managing expenses and everything in between.


1. Work out how much startup capital you need

When working out the amount of capital I would need to fund my venture, Insured for Life, I first factored in the amount of money I would need to pay myself as an employee of the business.

Then I looked at the cost of professional advice, such as financial advisors, accountants and lawyers, licences and the amount of capital I’d generally need to get my business off the ground.

I found it was important when calculating estimated startup capital to create an honest and generous budget that provides a good financial buffer, especially for the first two years of business – because that is when most things can go wrong.

2. Weigh up your funding options

In my situation, I was fortunate enough to be able to inject existing cash flow into my new business pursuit. But for those who don’t have a few thousand dollars to tap into, it helps to seek out and weigh up the different financing options available to you.

A useful option might be assistance from friends or family, because their loan and interest terms are often more favourable than the banks’ terms. There are obviously risks associated with this, and close relationships are at stake, so be sure you have a very clear agreement and understanding with anyone who is willing to help you out.

Alternatively, you can seek a business loan from a bank or non-bank lender, but be aware of the risks you’ll face if your business venture fails. Watch out for unlimited guarantees and all-monies clauses that can leave you paying life and limb if the venture fails. Do your research and, if in doubt, speak to a finance advisor who can help guide you through your options.

3. Align your finance goals with your business plan

This is a tip I probably should have followed a bit more closely, particularly in the first two years of business.

It’s an unfortunate but honest reality that many businesses don’t see it past the two-year mark, so being able to budget appropriately and generously for those first two years – and work those goals in with your strategic objectives – is a very useful tool to ensure business survival.

In my case, I probably could have been a bit more conservative with budgets and goals during that initial startup period. In hindsight, I probably would have budgeted and operated on a worst-case scenario basis. But I since learnt from that and have been much more adept at aligning strategy and budget moving forward. When it comes to business, it’s only natural that everything is a learning experience.

4. Get insurance

Accidents and injury can occur when you least expect it, and when you’re self-employed they can make or break your business. But you can’t exactly wrap yourself in cotton wool either.

There are tons of insurance products on the market to help protect you against risk, including business protection, income protection, professional indemnity, D&O liability, public liability, workers’ compensation, tradie insurance and so on. It is worth considering some kind of insurance protection for you and your venture. 

If you’re unsure about what type of cover you’ll need, speak to a trusted insurance or financial advisor. For me, talking to my financial advisor was one of the best things I did because not only did it help me choose the right insurance products, it also opened my eyes to risks and situations I would’ve never even considered.

5. Be honest with yourself

And that brings me to an important point: always know your weaknesses as well as your strengths. Being great at what you do is a completely different ball game to being a great business owner. My tip would be to really enlist the strengths of professionals who are skilled in business and finance so you can elicit the right advice and make the right decisions.

There’s a mantra that I’ve always lived by: “Don’t let your abilities impede your ambitions.” 

Want the best tips to help you run your new venture? Check out our five must-read business books.

Matt Jarrott is a Resilium Adviser and experienced insurance specialist. Based in Melbourne, Matt runs Infinity Insurance Services, which offers business insurance, and Insured for Life, which specialises in income protection, life, trauma, and TPD insurance.

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