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While most people know that the majority of small businesses fail within five years, it’s unlikely that they know why. According to experts, 82% of these businesses have a poor understanding of cash flow and bad money management skills. If you’re a small business and don’t want to become part of the ‘failed’ statistic, it’s important that you don’t have this problem!
Here, we’re going to talk about how you can create a financial strategy that ensures business success. Read on for some tips on how you can boost your startup up above the competition!
1. Adjust Your Mindset
Most entrepreneurs view money as the goal of a business. This makes sense- after all, turning a profit is the most important objective for any startup. It’s essential for success.
However, thinking about money as a goal will cause your business to feel unrewarding (and therefore stunt growth). Instead, you’ll want to adjust your outlook and view money as a tool that can be used to accomplish other business objectives. Do you want to streamline a new product? Innovate software to make a certain task or application run faster? Money is a means that you use to achieve these goals either than an end to itself.
2. Set a Budget
Once you understand money as a tool, it’s time to set a baseline budget for your business operations. Make sure that you’re operating below your means. If you spend too much right off the bat, you won’t have any cash saved for a rainy day. You also will find that you don’t have the means to invest in other essential operations later.
Your budget should be written out in an easy-to-read format. There are many sites online and Smartphone apps that exist for budget planning. However, if you want to keep it simple, an Excel spreadsheet will work just fine.
3. Talk to a Financial Advisor
While it might be tempting to set your budget on your own, this is a surefire way to make mistakes and miscalculate. An expert financial advisor will have the experience necessary to help you ensure that you’re making the right decisions. While a business background is a great way to understand cash flow, sales, and marketing, someone who has worked extensively with money may have some ideas that you haven’t yet considered.
4. Know Your Financing Options
There are many financing options out there that exist for the sake of helping entrepreneurs. You will want to find investors that purchase a stake in your business for a fair price. You can use this money to ensure that your startup is successful (and that the shares that investors bought will make them money rather than losing it).
One of the most common methods that small businesses use to get money is taking out business loans. Since 79% of startups begin with too little money, it’s important that you make sure you take out as much as you need. This cash loan company can help you get started with a quick loan that can cover the expenses of opening your business on the right foot.
5. Forecast Your Sales
A financial planner can help you forecast how profitable your business is going to be within the first year, but you will want to take a look at the logistics yourself as well. After all, you know your market. You know exactly how much competition your business has and how well your industry is doing in 2020 and beyond.
Figure out how many units of inventory you can sell in a month. If you have past data, use it- nothing is a better predictor of the future. If the product is new, use Google Analytics and related software to see how many people are checking out its online page. Estimating how many units you can reasonably sell gets easier over time, but you need to at least guess when you start out.
The full amount of money that you make without any expenses taken out is your gross profit.
6. Calculate All Expenses
Once you forecast your sales and calculate your gross profit, you need to get your net profit. Net profit is the amount of money that you have after your business expenditures. This is the amount that you actually are making, and it’s essential that your net profit be, well, a positive number. Otherwise, your business won’t be a success.
Make sure that you look at all the things you need. Estimate how much each item will cost you and add up the total. If you’re unsure of how much something will cost, estimate high. Don’t forget to count taxes, either.
This will ensure that there are no unforeseen expenses. Subtract that from your gross profit and you’ll know how much you’re making!
7. Reassess Regularly
Since business needs change as time goes by, it’s essential that you reassess your financial strategy regularly. Look at your budget and decide whether or not it’s working for you. If you think you need to hire more people or raise existing worker’s salaries, that’s also a good time to reframe your budget.
Remember that a small business is like a waterfall. It’s strong, but it has a fast flow and is ever-changing. As long as you keep this in mind, you’ll be mentally prepared for necessary change when it arrives.
More on Creating a Financial Strategy
Coming up with a financial plan is a challenge, but it’s a must. If you don’t know what kind of money you’ll be making, you won’t be able to effectively boost your ROI.
Now that you know all about creating a financial strategy for your small business, it’s time to learn more. Check out the ‘finance’ tab on our home page to get more extensive information on budgeting, loans, and beyond. Here, you’ll find tons of articles that will help you project your sales and expenses so that you can ensure you turn a profit.