How to calculate how much funding your business needs

“How much funding do you need?” This is the first question every business owner should be able to answer confidently when applying for business funding.

Here’s what you need to know about the amount of funding you need for your business:

Project the cash flow While every business has its own financing needs, you need to know the amount of funding you need to keep your business going.

When planning your costs, don’t underestimate the expenses, and remember that they can increase as the business grows.

Be precise when planning by taking a look at fixed expenses, these can easily be overlooked when considering the big picture.

Consider your business’ historical financials and base your forecasts on the costs that are needed. To complete a cash flow projection you need to add up your fixed expenses as well as the variable costs of providing your goods and services, and then forecast your expected income.

You should aim to build a cash flow forecast of at least three months. When applying for a business loan, ensure you not only know how much you’re borrowing but also the interest owed. Using a business loan calculator can help with this.

Be realistic about your cash flow and debt, especially as other costs start to build in the interim. Working closely with your lender will help you determine your financial position and ensure that you won’t be over-indebted. The different types of costs to consider.

There are many different types of cost estimations to consider. Differentiate between these costs to properly manage your business’s cash flow for the short and long term. One-time vs. ongoing costs Should there be a month where you need to make a one-time equipment purchase – this will be seen as a one-time cost. Then there are ongoing costs.

These costs are paid on regular basis and include expenses such as utilities. Essential vs. optional costs The optional cost considered are the purchases that can be made only if the budget allows. Whereas, the essential costs are expenses that are necessary for the day to day running and ongoing survival of your business.

Fixed vs. variable costs:

Your fixed expenses such as rent are consistent from month to month, while variable expenses depend on the direct sale of products or services.

If you plan to apply for additional funding to help cover your costs, focus on your fixed expenses as these will largely determine how much you need to request.

A business funding calculator will allow you to understand the costs of taking out the funding you require, including how these will vary depending on the period you want to borrow money for.