The Business Plan – Your Financial Picture

by Marion G Shaw on January 17, 2016

CalculatorNow it’s time to get out your calculator and set out your financial picture.

As I said in an earlier post, if you intend on opening and running a business you need to keep your financial affairs in good order.  No overdue loans, no maxed out credit cards or other debt that is not handled well.  After all, if you can’t manage your own finances, how will you be able to manage those of your salon?

Approximately 80% of new salons close their doors within the first 2 years, mainly because of poor financial management.  Don’t let yours be one of them.

Make some smart choices early in your career.  Start a savings plan, maybe it’s putting your tips into a special account that you cannot access easily.  Start a retirement plan.  Even borrowing a small amount of money for something and paying it off early will all add to your credit history.

If you are looking to borrow money to start your business, don’t expect the bank, or anyone else, for that matter, to throw in the full amount.  You will need a good deposit and access to working capital once the business is open.  Let’s face it, would you lend money to someone to open a business if they are not putting in anything themselves?  If you don’t have anything to lose, how committed will you be to make it work?

Your financial picture is about showing your net worth.  This is all about assets and liabilities.

Asset – Something that you own that has worth and can be turned into cash.  It may be a house, car, jewelry. stocks and shares, your bank accounts and retirement accounts.

Liability – Money that you owe.  It could be that mortgage on the house, credit card debt, your student loan, the car loan.  Get the picture?

You will need to itemize each of these in 2 columns.

Add each column and get a total of each one.  Then take the liabilities from the assets and see what you have left.

That is your Net Worth which is very important to whomever is loaning you the money.  Your loan amount will be based on that figure, plus your ability to pay it back.

Before you go to the bank, do some homework on loans.  If you are not going to be incorporated, the money will be a personal loan.  Find out what the interest rates are.  Find out what your repayment will be on a monthly basis and work this into your cashflow plan.  After all, the most important thing to any lender is knowing that you have the ability to pay it back along with the interest.  That’s why they are in business.

So if you are thinking that in the future you may want to be a salon owner,  make a net worth statement right now and see what your actual financial picture is, then make plans to improve it.

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