The start of a new year is one of the perfect opportunities to make changes, whether it’s signing up for a class or changing your routine, and for those who are feeling riskier, even start your own business. For this group, the concept is often clear, but the financial part is still a little unclear, and this is where many businesses fail.
It is for this reason that financial knowledge and planning is a basis for starting a business, but not only on a business level, but also on a personal level, because in most cases you start with your own financing. These are the so-called dromedarieswhich are “companies which they grow gradually, with their own resourcesin search of stability and sustained profitability”, understands the Entrepreneurship guide for young people carried out by the Spanish Association of Financial Advisors and Planners (Efpa Spain).
Unlike unicorns, which grow faster thanks to large investment cycles, camels rely more on their own resources. How much of your personal budget can you risk? “It must be an amount which, in the event of a total loss, does not compromise stability”explain Jordi Martínezcoordinator of the financial education program of EFPA Spain, and considers that it should function as a stop losses financial: “If you reach this limit (of money) and the business does not take off, you retire with your assets intact.”
Another concept introduced by Martínez is to calculate the track, That is, how long you can survive without generating profits. “Between six and 12 months of operating expenses “The ideal would be to have a cushion so that at least some liquidity allows us to start without having to enter with massive resources from outside”, explains the coordinator, who points out that in many cases, entrepreneurs expect to sell a lot from the first months but end up with larger payments such as rent for premises or subscriptions to software.
Expert advice
With that, starting a business can be completely unfamiliar territory, but you get a lot of security by being clear on certain financial concepts. Martínez evokes “a triad” essential to begin with: the initial investmentwhat is needed before taking the company public; THE monthly expensesthe amount needed to live six to 12 months without income; and the balance pointthe exact sales volume that will make income equal to expenses.
Martínez also includes in the construction of the budget of the to start up A 10% contingency fund. In this sense, Martínez recommends that entrepreneurs constitute this amount for emergency situations. at least six months and in the best-case scenario, a year to cover personal expenses necessary to “survive as an individual to pay rent, mortgage, or food.” Of course, these are amounts that must be separated to avoid borrowing an amount from the company for personal use or vice versa.
In addition, the expert also reminds that it is important to recognize if it is time to withdraw in order to do so on time and not generate greater losses. For him, it is important to say “I am going to risk a lot of money and if it does not work, I am not going to insist”, he explains, “so as not to jeopardize any stability”.
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