All startup owners and managers need to know their profitability. At the basic level, they want to run a successful business that can last for years. In addition, potential investors are more interested in helping you expand if you can prove that you can earn money for them.
Business Owner Obligations
Every business gains a competitive advantage by knowing how to play to their strengths. Good owners delegate duties to people and know-how to utilize their time. They also keep an eye on the available cash they have to specialize in particular duties such as marketing, distribution and working with capitalists. We talk about individual success in our video series and you can apply these lessons to the business world.
We do advise that you can outsource finances, and to not hire your friends. Startups do not perform well when friends work together in the same company. Also, a business owner should not handle their financial obligations alone. Doing so can be a drain on your time and resources when you could specialize in the expertise that makes your venture profitable. Even so, you need to keep an eye on your cash flow so that you can stay in the red.
Financial forecasting is one essential step you need to take. The process allows you to plan your potential gross margin over the next year and convince investors that you will give them a viable return of their initial capital.
Organizing Your Financial Statements And Other Important Steps
Do you have our income statement, balance sheets, and cash flow statements on order? You need to ensure that all accounts receivable, debits and credits add up and that you can assess revenues and expenses over a designated time period. If numbers don’t make sense, then you can end up easily in the red. Realistic financial projections can take these statements into account to increase your accuracy.
First, set your goals over the next six months. These need to abide by realistic expectations, such as a designated window of revenue or the number of products and services you want to display. You can figure out how many new people you need to hire, or how many products you need to sell to reach that goal, and figure out how much money to set aside for potential variable and fixed costs.
Second, know the difference between cash flow and profit when engaging in business planning. Cash flow is the amount of money you have available to pay expenses or make an investment. Profitability, in contrast, is about the money you have after deducting expenses from incoming revenue. You can’t just spend revenue on new products and assume that the money is there. Businesses must always account for their expenses and know how much cash flow they have available for slow months or when taking risks.
Third, create a sales forecast and determine projected income while creating a window of flexibility. The total number of sales will inform you of potential revenue over this period of time, and you can factor in potential unknowns such as market demands. Positive publicity can cause demand for your product to dramatically increase, while negative publicity will necessitate damage control.
Get our Small Business Support From DeepSky
DeepSky wants to make your startup into the next big financial adventure. Our outsourced CFOS and accounting teams, especially our Financial WingmanTM program, will help manage your business at a smaller cost than hiring an in-house department. We specialize in helping you rise high above the break-even point and reaching high profitability.
Contact us today to get the support you need for your startup. You can disrupt your industry, with the right revenue projections from a firm that you can trust.