Chapter 2

How much business funding do you need?

Knowing how much money you need will help you choose the right type of finance. These tips will help you find a number.

Business budgeting tips

It can be tricky figuring out how much money it takes to start, buy, run, or grow a business. Here are some things to think about as you go through the process.

Starting a business

  • Building the business: List all the things it will take to get started. Include things like building fit-outs, vehicles, equipment, uniforms, initial inventory, website development, and promotion.
  • Running the business in the early days: Figure out what it will cost to pay leases, salaries/wages, suppliers, and utilities from week to week. Your starting revenue isn’t likely to cover all that. How much more cash will you need?
  • Sneaky costs (that are commonly overlooked): Startups commonly forget to budget for things like permits, rental bonds, insurance, utility connections, bank fees, website hosting, marketing costs to boost initial sales, and transport costs. Don’t make those mistakes.
  • Wiggle room: Things won’t go as planned so put a buffer in your budget. You may need it to hire staff if things take off, or costs may go up if a cheap supplier goes out of business.

Don’t just get into business, stay in business

It's easy to get preoccupied by the costs of starting (or buying) a business. Look beyond that. Ask yourself how much money it will take to run the business. Your revenue probably won't cover those costs in the early days.

Starting costs will include things like uniforms, office hardware, work tools, and vehicles.

Running costs will include things like transport, energy and utilities, inventory, and consultants.

Buying a business

  • Get a valuation: A professional valuation will help you decide how much a business is worth, and it will tell you if expensive equipment is due to be replaced.
  • Check the books: Have an accountant look at the past two years of business accounts to make sure it will make you money. Budget for an initial dip in revenue as customers adjust to new management.
  • Work out the cost of change: Will you be rebranding, hiring staff, buying extra equipment, or trying new marketing ideas? Estimate the investment required.

Buying a franchise? Some franchisors provide detailed budgets for buying and running the business, but that’s not always the case. Check out our guide on becoming a franchisee for more tips.

Running a business

  • What is a working capital loan? Day-to-day costs can be hard to cover if a big customer pays late, an unplanned bill comes in, or you have a bad month of sales. Working capital loans keep things running while you recover.
  • How often will you need one? You may think you only need working capital loans at random times, but look for patterns. If it’s regular and predictable, that may affect your finance strategy.
  • Avoid the high-interest trap: Working capital loans are often short-term and flexible. Because of that, the interest rate will be high. If you need a lot of them, it will get expensive. Get an accountant to review your debt regularly. It might be worth converting some short-term debt to a lower-interest, long-term loan.

Growing a business

  • Make a budget: List all the costs involved in making the improvements, item by item. Get an estimate for each. If you need to operate at diminished capacity while the changes are made, factor that in too.
  • The hidden costs of growth: Work out what will happen to your operating costs after expansion. You may need more inventory or staff. Check your budget covers that, or that you can get a working capital loan.
  • Make sure it’s worth it: Now you know the costs, figure out the return. Unless something’s going to improve your profits or make business easier, it’s probably not worth financing. Do a cost-benefit analysis.
  • Consider your finance options: Could you finance it yourself if your vendors gave you longer to pay? Maybe you could negotiate a deal? Or your vendors may be able to provide some finance of their own. Explore everything.
  • Think about cash flow: Remember that putting too much of your own cash into a purchase can backfire. If you run down all your reserves, you may have to take a short-term loan later and they have higher interest rates.

Get an accountant to look at your numbers

Getting finance always comes at a cost. An oversight here, or a miscalculation there can have big implications. Taking on debt or allowing investors into your business is a big deal. It’s great to run the numbers yourself, but consult a professional before jumping in – they’re the experts at budgeting and finance.


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

How to finance your business

Need finance for your business? Learn about the types of finance, approaching lenders and investors and more.

  1. What is business finance?

    Your new business idea is ready to go. Now you need to find the right small business funding. But where do you start?

  2. How much business funding do you need?

    Knowing how much money you need will help you choose the right type of finance. These tips will help you find a number.

  3. Debt versus equity finance

    Most forms of funding fall into one of two camps. Let’s look at the main pros and cons of debt versus equity.

  4. Main types of finance

    It takes money to make money. So what sort of finance options are there? Here are the types that fund most businesses.

  5. How to get a business loan

    Getting a business loan is still one of the most common ways to finance a business. So let’s look at how to get one.

  6. Peer-to-peer lending

    Peer-to-peer lending is an alternative method of getting a business loan. How does it work?

  7. Friends and family loans

    Friends and family loans may be available when other types of finance aren’t, but they do require some precautions.

  8. Invoice financing

    Ever thought your cash flow would be better if everyone just paid what they owed you? Well, you may not have to wait.

  9. How to find investors

    How do you find investors for equity financing? Let’s look at what types there are and where to locate them.

  10. Angel investors versus venture capitalists

    Angel investors and venture capitalists are alternative finance sources. What can they offer your business?

  11. How crowdfunding works

    Crowdfunding can get you money to build a business, and the attention to build a customer base.

  12. Small business grants

    Grants are a great funding option for some businesses. They can be a lot of work to get, but the reward is free money.

  13. Pitching for business funding

    Seeking business funding is a major step but you needn’t be daunted. Here’s how to pitch your business.

  14. Tools and guides for your business

    Now that you’re in business, you want to stay there. Xero’s got resources and solutions to help.

Download the guide to financing your business

Your intro to the different types of finance, including their pros and cons. Fill out the form to receive our finance guide as a PDF.

Start using Xero for free

Access Xero features for 30 days, then decide which plan best suits your business.